The BIR issued RMC No. 126-2024, which announces the amendments on specific sections of RA No. 12023 or the National Internal Revenue Code of 1997 (the “Tax Code”), to impose Value-Added Tax (VAT) on Digital Service Providers (DSPs).

Key Provisions are as follows:

  • Digital Services Subject to VAT
    • Applies to services provided online or via electronic networks
    • Includes online platforms, e-marketplaces, cloud services, advertising, and digital goods
  • Liability of Digital Service Providers (DSPs)
    • Both resident and non-resident DSPs must assess, collect, and remit VAT for digital services consumed in the Philippines
    • Non-Resident DSPs must register with the Bureau of Internal Revenue (BIR) if annual sales exceed PHP 3 million
  • Special Rules for Non-Resident DSPs
    • Must issue invoices with specific details (e.g., transaction date, VAT breakdown)
    • Required to be registered for VAT shall be liable for the remittance of VAT on the digital services that are consumed in the Philippines if the consumers are non-VAT registered
    • VAT-registered non-resident DSPs may also remit VAT on transactions involving other non-resident sellers if they control key aspects of the transactions
  • Reverse Charge Mechanism
    • VAT-registered consumers must withhold and remit VAT for digital services purchased from non-resident DSPs
  • VAT-Exempt Transactions
    • Educational services accredited by DepEd, CHED, or TESDA
    • Banking and financial services delivered through digital platforms
  • Enforcement
    • The BIR, in coordination with the DICT and NTC, can block non-compliant DSPs from operating in the Philippines.
  • Registration System
    • A simplified online VAT registration system will be established for non-resident DSPs.
  • Implementation
    • Rules and regulations will be issued within 90 days of the law’s effectivity.
    • DSPs will be subject to VAT after 120 days from the issuance of implementing rules.