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Philippines Digital Services Tax

In 2025, the Philippine government began implementing Republic Act No. 12023, known as the Value-Added Tax (VAT) on Digital Services Act. This law imposes a 12% VAT on digital services and goods consumed in the Philippines and is particularly relevant for U.S. companies offering streaming, cloud computing, SaaS, online advertising, e-commerce platforms, and other digital services to Philippine users. The tax applies to both local and foreign digital service providers (DSPs), and registration is required for those with annual gross sales to Philippine customers amounting to more than approximately $55,000 (PHP 3 million).

Key Provisions and Compliance Requirements
•    Nonresident providers must register with the Bureau of Internal Revenue (BIR) through either the VAT on Digital Services (VDS) Portal or the Online Registration and Update System (ORUS) on or before July 1, 2025. 
•    Registration is mandatory even for providers engaged exclusively in business-to-business (B2B) transactions. In business-to-consumer (B2C) transactions, providers are required to charge and remit 12% VAT. 
•    For B2B sales, VAT is applied through a reverse charge mechanism, where the local buyer accounts for the tax, but the provider must still register, issue compliant invoices, and submit regular reports.

All digital service providers must issue invoices that meet Philippine tax requirements and retain them electronically. Noncompliance may result in penalties, suspension, or even blocking of access to the Philippine market. The BIR has enforcement authority and may coordinate with regulatory agencies to restrict access to unregistered platforms. In cases where online marketplaces exercise control over pricing, delivery, or other key aspects of a transaction, they may be deemed the taxpayer and held responsible for VAT collection.

Strategic Considerations for U.S. Companies 
U.S. companies should assess their exposure in the Philippine market, determine the mix of B2B and B2C transactions, and ensure their billing and reporting systems are VAT-compliant. It is strongly recommended to work with local tax professionals to navigate registration, invoicing, and filing obligations. Because VAT will likely be passed on to end-users, companies should prepare to communicate pricing changes clearly and in advance.

This law brings the Philippines in line with similar tax policies already adopted across ASEAN and reflects broader international trends in taxing the digital economy. Eight of the ten ASEAN member countries have already imposed digital VAT tax rates of various forms, ranging from 7% to 12% (the Philippines is the highest). By taking timely action, U.S. firms can maintain market access, manage risk, and stay ahead of regulatory developments in a key regional market.

To learn more about this new regulation, contact Easter Villanueva, Commercial Specialist, U.S. Commercial Service Manila at Easter.Villanueva@trade.gov.