On October 2, 2024, President Ferdinand Marcos Jr. signed Republic Act No. 12023, imposing a 12% VAT on foreign digital services. (source)
This law applies to platforms like Netflix, Spotify, and Shopee, ensuring offshore providers contribute equitably to the Philippine economy. (source)
The measure is expected to generate P105 billion in revenue over five years, supporting infrastructure projects and the creative industry (source)
On October 2, 2024, President Ferdinand Marcos Jr. took a significant step in tax legislation by signing Republic Act No. 12023, which imposes a 12% value-added tax (VAT) on foreign digital services operating in the Philippines. This law targets platforms without a physical presence in the country, including popular streaming services like Netflix and Spotify, and e-commerce giants such as Shopee and Lazada.
The law defines "digital services" broadly, covering various online activities supplied over the internet, such as digital media, advertising, online marketplaces, and cloud services. As the digital landscape continues to evolve, it’s vital for all entities benefiting from the Filipino market to contribute fairly.
A Level Playing Field for Local and Foreign Providers
During the ceremonial signing at Malacañan Palace, President Marcos emphasized the importance of equitable tax responsibilities. He stated, "If you are reaping the rewards of a fruitful digital economy here, it is only right that you contribute also to its growth." This initiative aims to level the playing field between local businesses and international digital platforms, ensuring that both operate under similar tax obligations.
Revenue Generation and Benefits to the Creative Industry
The government anticipates generating approximately P105 billion in additional revenue over the next five years due to this new law. This amount could finance numerous projects, including 42,000 classrooms, 6,000 rural health units, and 7,000 kilometers of farm-to-market roads. Notably, 5% of the revenue generated will be allocated to the creative industry, helping artists, filmmakers, and musicians thrive in a competitive digital marketplace (source).
Exemptions and Implementation
It’s important to note that certain digital services are exempt from this tax, including educational platforms that offer online courses and webinars for recognized institutions. The implementation of RA 12023 will be overseen by the Department of Information and Communications Technology (DICT) through the National Telecommunications Commission (NTC).
To ensure a smooth transition, there will be a 120-day adjustment period once the implementing rules and regulations are established. This period will allow the Bureau of Internal Revenue (BIR) to put in place necessary systems to collect the VAT effectively.
Conclusion
The signing of Republic Act No. 12023 marks a pivotal moment in the Philippine digital economy, creating a framework where foreign digital service providers contribute to the local economy. As businesses adapt to these changes, it’s essential to remain compliant and informed about new tax obligations.
For any inquiries or assistance regarding compliance with this new law, Aureada CPA Law Firm is here to help. Our experienced team can guide you through the complexities of tax regulations and ensure your business is prepared for these changes.
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