Tax Alert No. 3 [Revenue Regulations (RR) No. 3-2025 dated 16 January 2025]

Prescribing policies and guidelines for the implementation of Republic Act (RA) No. 12023 entitled "An Act Amending Sections 105, 108, 109, 110, 113, 114, 115, 128, 236 and 288 and Adding New Sections 108-A and 108-B of the National Internal Revenue Code of 1997, as Amended," Imposing the Value-Added Tax (VAT) on Digital Services.

Please be informed that RR No. 3-2025 has been issued to provide policies and guidelines for the implementation of VAT on Digital Services Act amending Sections 105, 108, 109, 110, 113, 114, 115, 128, 236 and 288 and Adding New Sections 108-A and 108-B of the National Internal Revenue Code of 1997 (“Tax Code”), as amended. We provide below the salient points:

• Coverage of the RR

• “Digital Services” refers to any service supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated. It shall include, but not limited to: online search engine; online marketplace or e-marketplace; cloud service; online media and advertising; online platform; or digital goods; or cloud or IT infrastructure.

• A DSP refers to a resident or nonresident (no physical presence in the Philippines) supplier of digital services to a buyer who uses digital services subject to Philippine VAT.

• Generally, 12% VAT shall be levied, assessed, and collected on the gross sales derived by a DSP from its sale or exchange of digital services in the Philippines.

• Those provided by a nonresident DSP shall be considered performed, rendered, supplied, or delivered in the Philippines in the course of trade or business if such digital services are consumed in the Philippines; i.e. the buyer is located in the Philippines.

• DSPs, whether resident or nonresident, are required to register with the Bureau of Internal Revenue (BIR). Nonresident DSPs need not have a local representative but may appoint one for purposes of receiving notices, record keeping, filing of tax returns and other reporting obligations.

• DSPs shall file the return and pay the 12% VAT due. In a B2B transaction with a nonresident VAT-registered DSP, persons engaged in business, including the government of the Philippines or any of its political subdivisions, instrumentalities or agencies, shall be liable for withholding and remitting the VAT due on their purchase of digital services.

• DSPs shall issue commercial or sales invoices. For nonresident VAT-registered DSPs, the invoices, which must be in English or include an English translation, may be electronic and need not be registered with the BIR.

• Resident VAT-registered DPSs shall maintain regular accounting records. This requirement does not apply to nonresident VAT-registered DSPs.

• Only resident VAT-registered DSPs shall be allowed to claim input tax from purchase of goods or services.

• The Commissioner of Internal Revenue or his duly authorized representative, upon verification that any DSP fails to: (a) register its business with the BIR; and (b) comply with the provision of these RR, has the authority to issue a Closure or Take Down Order to close the business operations of such covered persons engaged in business. This shall include the blocking of digital service performed or rendered in the Philippines by a DSP.

• The closure of business operations under a duly approved Closure or Take Down Order shall not preclude the BIR from filing the appropriate administrative and criminal sanctions against the persons concerned if evidence so warrants, or in the case of juridical entities, against its responsible officers, under the Run After Tax Evaders (RATE) Program of the BIR.

• All nonresident DSPs required to register shall do so within 60 days from the effectivity of the RR through the VAT Digital Services portal and shall immediately be subject to VAT 120 days thereafter.

• This RR shall take effect 15 days following its publication in the Official Gazette or the BIR’s official website, whichever comes earlier. The RR was published in the BIR’s official website on 17 January 2025.
  

You may access the full version of this Regulation through the BIR website.

For any inquiry or request for assistance, please feel free to contact anyone from our Tax Services group. You may also reach us through this link