BIR Implements 12% VAT on Digital Services: Full Guide to Revenue Regulations No. 3-2025

Yasser Aureada
Apr 30
3 min read

Overview

This regulation provides the implementing rules for imposing 12% VAT on digital services supplied in the Philippines by both resident and nonresident digital service providers (DSPs), regardless of whether the providers have a physical presence in the country.

⸻

SECTION 1: Scope

The regulation is issued pursuant to Sections 244 and 245 of the Tax Code, as amended by RA No. 12023, which adds Sections 108-A and 108-B. It outlines the VAT rules for digital service transactions in the Philippines.

⸻

SECTION 2: Coverage

This regulation covers:

(A) Persons Covered: All persons (individuals or juridical entities, resident or nonresident) who deliver digital services in the Philippines in the course of trade or business.
(B) Transaction Types:
- B2B (Business-to-Business): Services delivered to businesses or government entities in the Philippines.
- B2C (Business-to-Consumer): Services delivered to individuals not engaged in business.
(C) Tax Compliance:
- (1) DSPs directly supplying digital services in PH.
- (2) DSPs acting as e-marketplaces facilitating supply by nonresidents.

⸻

SECTION 3: Definition of Terms

Digital Services: Any service delivered electronically and essentially automated, including:
Search engines, marketplaces, cloud services, media/ads, digital goods (ebooks, apps, courses, etc.), hosting, analytics, VPNs, and more.
DSP: Any supplier (resident or nonresident) of digital services subject to VAT.
E-Marketplace: Digital platforms facilitating online sales.
Nonresident DSP: A DSP with no physical presence in the PH.
Resident DSP: Any DSP not falling under the nonresident category.
Reverse Charge Mechanism: Local buyers (including GOCCs) must withhold and remit VAT on purchases from nonresident DSPs.
Gross Sales Conversion: If paid in foreign currency, must convert using BAP, BSP, or other approved forex rates.

⸻

SECTION 4: VAT on Gross Sales

VAT Rate: 12% on gross sales of digital services consumed in the PH.
Consumption Basis: Determined by buyer info—payment, billing, SIM/IP, or other credible proof.
Burden of Proof: DSPs must prove consumption outside PH; if unclear, assume PH consumption.

⸻

SECTION 5: Registration Requirements

Resident DSPs: Register per standard BIR procedures.
Nonresident DSPs:
Register via the VAT on Digital Services (VDS) Portal.
Can appoint a third-party local representative for notices and filings (e.g., law or accounting firm).
A Certificate of Registration with a TIN is issued upon registration.

⸻

SECTION 6: Filing of Returns and Payment

Resident VAT-Registered DSP:
- File VAT returns and pay due VAT.
- If acting as a marketplace, also withhold VAT on sales of nonresident merchants.
Nonresident VAT-Registered DSP:
- B2B: PH buyer withholds and remits VAT; files remittance return.
- B2C: DSP files VAT return and pays directly via VDS portal.
- May opt to file monthly, but quarterly returns still required.
- If an e-marketplace, must also pay VAT on behalf of nonresident merchants if platform controls pricing, delivery, or terms.

⸻

SECTION 7: Input Tax Claims

Resident DSPs: May claim input VAT on purchases.
Nonresident DSPs: Not allowed to claim input VAT.
Buyers: Only VAT-registered buyers may claim input VAT using filed withholding returns.

⸻

SECTION 8: Invoicing Requirements

Resident DSPs: Issue VAT-compliant sales invoices.
Nonresident DSPs:
- Must include: date, ref number, buyer ID (if any), transaction description, total with VAT.
- Invoices may be digital and need not be registered with the BIR.
- If exempt or zero-rated, breakdown must be shown.
- If acting as a marketplace, apply invoicing rules for marketplace operators.

⸻

SECTION 9: Accounting Requirements

All VAT-registered persons must maintain VAT accounting records.
Exemption: Nonresident VAT-registered DSPs are not required to maintain books in the Philippines.

⸻

SECTION 10: VAT-Exempt Digital Services

The following are exempt from VAT:

Educational services by DepEd, CHED, TESDA-accredited institutions.
Subscription services for education to DepEd, CHED, TESDA-recognized institutions.
Financial services by banks, VASPs, and BSP-accredited entities.

⸻

SECTION 11: BIR Audit and Verification