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Proposed New VAT on Digital Services

By: Atty. Euney Marie J. Mata-Perez on May 23,2024

Our government is poised to expand its wings, to take advantage of the global growth of the digital economy.

The Senate approved on third reading Senate Bill (SB) No. 2528, a bill proposing to impose the 12% value-added tax (VAT) on suppliers of digital services. This will be done by amending our National Internal Revenue Code (Tax Code) to expressly include “digital services” and “digital service providers” as among the transactions and entities subject to VAT.  The VAT is  due whether the digital service provider is a resident or nonresident, i.e., one without any physical presence in the Philippines.

The bill shall be forwarded to the President for his approval and signature. Unless he exercises his veto power, its provisions shall become law.

New VAT Nexus

VAT is a transaction tax and thus, is imposed only on sale of goods or services occurring within the Philippines.  In this regard, SB No. 2528 proposes to add a proviso in Section 105 of the Tax Code, stating that digital services delivered by nonresident digital service providers are considered performed or rendered in the Philippines if the digital services are consumed in the Philippines.”  This proposed amendment thus puts digital services (even if performed or rendered from outside the Philippines) within the ambit of our VAT system, for as long as they are consumed in the Philippines. Thus, the key factor  would now be the presence in the Philippines of the customers who consume the digital services. 

No input VAT

Nonresident digital service providers shall not be allowed to claim creditable input tax. Thus, their effective VAT rate shall be the entire 12%.

What is a Digital Service for VAT Purposes?

SB No. 2528provides that “Digital Service” shall refer to any service that is 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:

(1) online search engine;
(2) online marketplace or e-marketplace;

(3) cloud service;
(4) online media and advertising;

(5) online platform; or
(6) digital goods.

A “Digital Service Provider” is a supplier of  the aforementioned services to a consumer who consumes the service in the Philippines.

The VAT is imposed whether or not the digital service provider is a resident or nonresident, i.e., one without any physical presence in the Philippines.

VAT Exemption

SB No. 2528, however, exempts from VAT: (1) those private educational institutions accredited by the Department of Education (DEPED), the Commission on Higher Education (CHED) and Technical Education and Skills Development Authority (TESDA) and government educational institutions who render educational digital services including online courses, online seminars, and online trainings, and (2) sale of online subscription-based services to DEPED, CHED, TESDA, and other educational institutions recognized by these agencies.

VAT Registration

Under the bill, digital service providers, including nonresident digital services providers, are required to register for VAT purposes. But such registration shall be required only if their gross sales have exceeded Three Million Pesos (PhP3,000,000) or is reasonably believed to exceed Three Million Pesos (PhP3,000,000) within the next 12 months. 

The Bureau of Internal Revenue (BIR) is mandated to establish a simplified automated registration system for nonresident digital service providers.

VAT Withholding and Remittance

If the consumers are VAT-registered, they shall be liable to withhold and remit to the BIR, within ten (10) days following the end of the month the withholding was made, the VAT due on its purchases of digital services consumed in the Philippines from nonresident digital service providers.

If the consumers are non-VAT registered, the nonresident digital service provider required to be VAT-registered shall be liable for the remittance of VAT on the digital services consumed within the Philippines.

Special Rules for Online marketplace or e-marketplace Providers

Ifa VAT-registered nonresident digital service provider is classified as an online marketplace or e-marketplace, it shall also be liable to remit VAT on the transactions of nonresident sellers that go through its platform, provided, that it controls key aspects of the supply, and performs any of the following:

  1. It sets, either directly or indirectly, any of the terms and conditions under which the supply of goods is made; or
  2. It is involved in the ordering or delivery of the goods, whether directly or indirectly.

Blocking of Non-Compliant Digital Service Providers

SB No. 2528 expands the power of the Commissioner of Internal Revenue (CIR) to suspend business operations of a taxpayer by amending Section 115 of the Tax Code to include the blocking digital services provided to the Philippines by a digital services provider.  Such blocking shall be implemented by the Department of Information and Communications Technology, through the National Telecommunications Commission.


This new rule of imposing VAT on digital services providers based on the place of the consumers has actually been similarly adopted in other jurisdictions, like the European Union.

The imposition of the 12% VAT on digital services will certainly increase the cost of these services, and thus, increase the cost of doing business in the Philippines.  This will impose a withholding tax burden and obligation on consumers who are VAT registered. Of course, with our huge consumption economy, this will certainly increase the collections of the BIR.

Euney Marie J. Mata-Perez is a CPA-Lawyer and the Managing Partner of Mata-Perez, Tamayo & Francisco (MTF Counsel).  She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal and is the incoming Chair of the Tax Committee of the Management Association of the Philippines. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at or visit MTF website at

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