VAT on Digital Services: A New Reality for Online Service Providers in the Philippines

Strategic Insights -

As the implementation of the 12 percent value-added tax (VAT) on digital services by digital service providers (DSPs) in the Philippines takes effect, online service providers are facing new challenges in complying with the registration requirement. Republic Act 12023, which amended Section 108 of the Tax Code, has made it mandatory for DSPs to register with the Bureau of Internal Revenue (BIR) for VAT purposes. The law defines digital services as any service supplied over the internet or other electronic network with the use of information technology, and includes online search engines, online marketplaces, cloud services, online media and advertising, online platforms, or digital goods.

Key Takeaways:

  • The VAT on digital services will be imposed regardless of whether the corresponding digital service provider is a resident or a non-resident supplier as long as the digital services will be consumed in the Philippines.
  • Non-resident digital service providers (NRDSPs) have been given multiple extensions to register through the VAT on Digital Services (VDS) Portal, with the current deadline being July 1, 2025.
  • The BIR may consider granting further extension of the deadline to give NRDSPs ample time and opportunity to prepare and register as a VAT taxpayer through a live VDS Portal or fully functioning Online Registration and Update System (ORUS) platform.
  • The successful implementation of the VAT on digital services has the potential to increase tax collection and support the nation-building efforts of the government.
  • NRDSPs with local representatives were afforded the opportunity to manually register in compliance with the law imposing VAT on the digital services.
  • The online portals that were supposed to allow NRDSPs to register are both unavailable, posing a challenge to the compliance of NRDSPs.

Statistics:

  • The VAT rate on digital services is 12 percent.
  • The extension of the registration deadline was granted from 60 to 120 days through Revenue Regulations (RR) 14-2025, or up until June 1, 2025.
  • The deadline for the online or electronic registration of all NRDSPs was further extended by the Bureau of Internal Revenue (BIR) through Revenue Memorandum Order (RMO) 58-2025 until July 1, 2025.
  • The imposition of VAT on digital services will still be reckoned from June 2, 2025, as stated in RR 14-2025.
  • The VDS Portal and the ORUS platform, which were supposed to allow NRDSPs to register, are both unavailable and under maintenance due to system migration activities.

Sources:

  • Republic Act 12023
  • Revenue Regulations (RR) 3-2025
  • Revenue Regulations (RR) 14-2025
  • Revenue Memorandum Order (RMO) 58-2025
  • KPMG in the Philippines - Arik Aaron Abu and Kathleen Saga