In more detail

• Digital services rendered in the course of trade or business are now expressly covered by the enumeration of transactions subject to VAT. The term "digital service" refers to any services suppled over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated. Digital services include: (i) online search engines; (ii) online marketplaces or e-marketplaces; (iii) cloud services; (iv) online media and advertising; (v) online platforms; and (vi) digital goods.
• The term "nonresident digital service provider" refers to a DSP that has no physical presence in the Philippines.
• Nonresident DSPs rendering digital services are required to register for VAT: (i) if their gross sales for the past 12 months, other than VAT-exempts sales, have exceeded the VAT threshold (currently PHP 3 million); or (ii) if there are reasonable grounds to believe that their gross sales, other than VAT-exempt sales, will exceed the VAT threshold. The BIR will establish a simplified automated VAT registration system for nonresident DSPs.
• Digital services delivered by nonresident DSPs are considered performed or rendered in the Philippines if the digital service is consumed in the Philippines.
• In a business-to-consumer transaction (i.e., with a Philippine customer that is not VAT-registered), DSPs, whether resident or nonresident, are liable for assessing, collecting and remitting VAT on the digital services consumed in the Philippines.
• In a business-to-business transaction with a VAT-registered Philippine customer, nonresident DSPs will be subject to the "reverse charge mechanism," where the VAT-registered taxpayer in the Philippines is required to withhold and remit VAT on its purchases of digital services consumed in the Philippines from the nonresident DSP.
• 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 nonresident sellers that go through its platform, provided that the said DSP controls key aspects of the supply and it: (a) sets, either directly or indirectly, any of the terms and conditions under which the supply of goods is made; or (b) is involved in the ordering or delivery of goods, whether directly or indirectly.
• The following digital services are VAT exempt: (a) online courses, online seminars and online trainings rendered by duly accredited private educational institutions and by government educational institutions, as well as the sale of online subscription-based services to the DepEd, CHED, TESDA and educational institutions recognized by these government agencies; and (b) services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, including those rendered through different digital platforms.
• Nonresident DSPs are not allowed to claim creditable input tax.
• VAT-registered nonresident DSPs are required to issue digital sales or commercial invoices for every sale, barter or exchange of digital services. The digital sales or commercial invoice must contain the: (i) date of the transaction; (ii) transaction reference number; (iii) identification of the consumer; (iv) brief description of the transaction; and (v) total amount, with the indication that such amount is inclusive of VAT. If applicable, the breakdown of the sale price for the digital service by its taxable, VAT-exempt, and VAT zero-rated components, and the calculation of VAT on each portion of the sale.
• VAT-registered nonresident DSPs are not covered by the requirement of maintaining subsidiary sales and purchases journals under the Philippine Tax Code.
• The Commissioner of Internal Revenue (CIR) may suspend the business operations of nonresident 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).
• Any communication, notice or summons to a nonresident digital service providers can be made via electronic mail messaging.

Next steps

The law shall take effect 15 days after its publication in the official gazette or in a newspaper of general circulation.

The Department of Finance, upon the recommendation of the Bureau of Internal Revenue, in coordination with the DICT and the NTC and upon consultation with stakeholders, is required to issue implementing rules and regulations (IRR) within 90 days from the effectivity of the law.

Nonresident DSPs shall be subject to VAT after 120 days from the effectivity of the IRR.

Nonresident DSPs should also consider the applicable requirements under the Internet Transactions Act.

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