​

 

With the rise of technology and the transition into post-pandemic era, Filipinos began to rely heavily on computer-based or internet-based activities ranging from online shopping, live selling, online video streaming, online classes, among others. 

 

Through the enactment of Republic Act No. 12023, the National Internal Revenue Code (“NIRC”) has been amended to include digital services under persons subject to VAT. Thus, those who render digital services in the course of trade or business are now liable to pay VAT in the amount of 12% of the gross sales derived from the sale or exchange of digital services.  

 

“Digital services” refer to services supplied over the internet or other electronic network through the use of information technology, and where the services are essentially automated. The amendment lists the following as “digital services”:

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.

 

Thus, with this amendment, platforms such as Netflix, Prime Video, Spotify, Shopee and Lazada are now subject to VAT in the Philippines for services used within the country. 

 

Digital Service Providers Subject to Vat

 

A digital service provider subject to VAT may either be a resident or non-resident supplier of digital services to a consumer who uses such services subject to VAT in the Philippines. A non-resident digital service provider refers to one that has no physical presence in the Philippines. Under R.A. 12023, digital services rendered by non-resident digital service providers are considered performed in the Philippines if the services are consumed here.

 

A person rendering digital services in the course of trade or business is must register for VAT if:

1. Their gross sales for the past 12 months, other than those exempt by law, have exceeded the threshold provided in Sec 109(CC) of the NIRC (3 million pesos), or 

2. There are reasonable grounds to believe that the gross sales for the next 12 months, other than those exempt by law, will exceed said threshold. 

 

A non-resident digital service provider required to be VAT-registered shall be liable to remit VAT on digital services consumed in the Philippines, if consumers are non-VAT registered. If consumers are VAT-registered, then Section 114D of the NIRC will govern. The BIR is mandated to establish a simplified automated registration system for these non-resident digital service providers.

 

If the non-resident digital service provider is VAT-registered and is an online marketplace, it shall also be liable to remit the VAT of non-resident sellers that go through its platform, so long as it controls key aspects of the supply and either:

1. Sets the terms and condition for the supply of goods, or 

2. Is involved in the ordering or delivery of goods, either directly or indirectly. 

 

Vat Exemption 

 

R.A. 12023 lists the following as exempt from VAT:

1. Online courses, online seminars and online trainings rendered by private educational institutions duly accredited by DepEd, CHED or TESDA;

2. Online courses, online seminars and online trainings rendered by government educational institutions; 

3. Sale of online subscription-based services to DepEd, CHED, TESDA and educational institutions recognized by said government agencies; and

4. Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries rendered through digital platforms. 

 

Creditable Input Tax

 

Under the R.A. 12023, non-resident digital service providers shall not be allowed to claim creditable input tax. 

 

Invoices 

 

Just like other VAT-registered entities, digital service providers are required to issue digital sales or commercial invoice for every sale, barter or exchange of digital services by a VAT-registered non-resident service provider. These digital sales or commercial invoices issued by a VAT-registered non-resident service provider shall indicate the (a) date of transaction, (b) the transaction reference number, (c) the identification of the consumer, (d) a brief description of the transaction and (e) the total amount, with an indication that the amount reflects the VAT. 

 

If the sale of digital services includes some services that are subject to VAT and some that are either exempt or zero-rated, the invoice shall clearly indicate by price which transactions are taxable, exempt and subject to zero VAT. 

 

Accounting Requirements for Non-Residents

 

VAT-registered non-resident digital service providers are not required to keep a subsidiary sales journal and subsidiary purchase journal where daily sales and purchases are recorded, unlike other persons subject to VAT.

​

Reverse Charge Mechanism in Digital Services 

 

A VAT-registered taxpayer shall be liable to withhold and remit to BIR the VAT due on its purchase of digital services consumed in the Philippines from non-resident digital service providers within 10 days from the end of the month the withholding was made.

 

Power of the Commissioner to Suspend Business Operations 

 

The Commissioner has the power to suspend business operations of non-compliant entities. With the enactment of R.A. 12023, this power now includes the blocking of digital services performed or rendered in the Philippines by a digital service provider.

 

Mode of Correspondence

 

R.A. 12023 allows any communication, notice, or summons to a non-resident digital service provider to be done via e-mail. 

 

A Response to Modernity

 

With more and more Filipinos relying on digital world, whether as a source of livelihood, for convenience of consumers or for entertainment, legislators find gaps to fill to ensure the regulation and protection of rights. R.A. 12023 recognizes a gap in VAT laws in the context of e-commerce. With this amendment, foreign digital service providers such as Shopee or Netflix not only provide the Filipino people with convenience for shopping, selling and entertainment, but they are now also directly contributing to the economy by being an additional revenue stream of the government for future projects.