VAT on Digital Services in the Philippines: Rules for Foreign Providers and Local Buyers (RA 12023)
Republic Act No. 12023 puts 12% VAT on digital services consumed in the Philippines, even when the seller is abroad. A foreign provider with no Philippine presence must register with the BIR once its Philippine sales pass the VAT threshold. For sales to consumers, the foreign provider files and pays the VAT. For sales to Philippine businesses, the local buyer withholds and remits the VAT. Foreign providers were required to register by June 1, 2025, and became subject to VAT on June 2, 2025.
What is RA 12023?
It is the law, signed on October 2, 2024, that amended the Tax Code to cover digital services supplied by both resident and nonresident providers. The BIR implemented it through Revenue Regulations (RR) No. 3-2025, issued in January 2025, as amended by RR No. 14-2025.
The rule is simple: a digital service is taxed here if it is consumed here. The BIR looks at where the buyer is, using payment, residence or access information.
What counts as a digital service?
A service supplied over the internet or another electronic network, mostly automated. Examples include:
streaming, downloads and subscription content;
software, cloud storage and IT infrastructure;
online marketplaces and payment processing;
online advertising and data analytics;
e-learning platforms and online tools.
Who must register with the BIR?
Resident providers follow the usual VAT rules.
Nonresident providers must register for VAT if their gross sales to Philippine buyers exceed the VAT threshold of ₱3 million in a 12-month period (Section 236, Tax Code). Registration is online through the BIR's VAT on Digital Services Portal or ORUS.
Registration does not by itself mean the foreign company is doing business in the Philippines. A foreign provider may also appoint a local representative to receive notices, keep records and file returns.
Who pays the VAT: the foreign provider or the Philippine buyer?
It depends on the buyer.
Sale to a consumer (B2C). The registered foreign provider files the return and pays the 12% VAT through a simplified, pay-only process on the BIR portal.
Sale to a Philippine business (B2B). The local buyer withholds the 12% VAT and remits it to the BIR. This is often called the reverse charge. A VAT-registered buyer may treat the amount as input VAT. A buyer that is not VAT-registered treats it as part of its cost.
Online marketplaces. A resident VAT-registered marketplace must withhold and remit the VAT on sales made through it by nonresident sellers.
What were the deadlines?
RR No. 14-2025 moved the transition dates. Nonresident providers had until June 1, 2025 to register and became subject to VAT starting June 2, 2025. A foreign provider that passes the threshold later should register before it continues selling to Philippine buyers.
What must appear on a foreign provider's invoice?
A nonresident provider's invoice may be electronic and need not be registered with the BIR. It must show:
the date of the transaction;
a transaction reference number;
the buyer's identification, including the TIN if any;
a brief description of the service;
the total amount, with a statement that it includes VAT.
Which digital services are exempt?
Educational services, including online courses and training, given by accredited private schools and government schools.
Sales of online subscription services to the Department of Education, the Commission on Higher Education, TESDA and schools they recognize.
Services of banks and of non-bank financial intermediaries performing quasi-banking functions.
What happens if a provider does not comply?
The BIR may suspend the provider's business in the Philippines, including by blocking its digital services here. The usual surcharges, interest and penalties under the Tax Code also apply. See what happens if you miss a BIR deadline.
What should Philippine companies that buy from foreign providers do?
List your foreign subscriptions. Include software, cloud, advertising and data tools.
Withhold and remit the 12% VAT on each payment to a nonresident provider, and keep proof. See unremitted withholding taxes.
Check income tax withholding separately. The VAT rule does not replace final withholding tax on royalties or other income, or the benefit of a tax treaty.
Keep the contracts and invoices. The BIR will ask for them in an audit.
Frequently asked questions
Does a foreign company need a Philippine office to register?
No.
Registration is online, and it does not by itself create a Philippine business presence.
Can a foreign provider claim input VAT?
The pay-only process for sales to consumers is based on gross sales. Ask a tax adviser before assuming any input VAT credit.
Do e-invoicing rules also apply?
Local sellers follow the Philippine invoicing rules. See our e-invoicing guide.
Sources
Republic Act No. 12023 (October 2, 2024), amending the National Internal Revenue Code of 1997
National Internal Revenue Code of 1997, as amended, Sections 105, 108 and 236
Revenue Regulations No. 3-2025
Revenue Regulations No. 14-2025
Facing a BIR audit, assessment or tax dispute?
Aureada CPA Law Firm's CPA-lawyers handle BIR audits, assessment protests, refund claims and Court of Tax Appeals cases from our Makati and Lucena offices. See our tax services.
You can also email info@aureadalaw.com or call (02) 8812-9990.
Related guides
This article is general information as of its publication date, not legal advice, and does not create a lawyer-client relationship. For advice on your situation, consult a lawyer.
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