VAT on Digital Services Providers

Digital service refers 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.
Digital services shall include:

1.  Online search engine;
2. Online marketplace or e-marketplace;
3. Cloud services;
4. Online media and advertising;
5. Online platform; or
6. Digital goods

Under the law, the term ‘digital service provider (DSP)’ may be a resident or nonresident supplier of digital services to a consumer who uses digital services. A ‘nonresident digital service provider’ means a digital service provider that has no physical presence in the Philippines.

Registration for VAT of a nonresident DSP

Nonresident DSPs shall be liable to register either electronically or manually, for VAT if:

1. The gross sales for the past 12 months other than those that are VAT-exempt have exceeded the threshold of P3,000,000; or
2. There are reasonable grounds to believe that the gross sales for the next 12 months other than those that are VAT-exempt have exceeded the threshold of P3,000,000. 

The BIR shall establish a simplifiedautomated registration system fornonresident DSPs, which shall be prescribedby the Secretary of Finance, upon the recommendation of the Commissioner. In case the DSP is required but failed to register as a VAT taxpayer, the power of the BIR Commissioner to suspend shall include blocking the digital services performed or rendered in the Philippines by the DSP.

Remittance of VAT by Nonresident DSPs

If the nonresident DSP’s customer is a VAT registered person, the customer is liable to withhold and remit the VAT via reversed charge mechanism (withholding VAT), within 10 days of the following month. If the customer is non-VAT registered, the nonresident DSPs have the obligation to remit 12% VAT on its digital services. Nonresident DSPs cannot claim input VAT. 

A VAT-registered nonresident DSP when classified as an online marketplace or e-marketplace shall also be liable to remit the VAT on the transactions of nonresident sellers that go through its platform, provided certain conditions are present.

Transitory Clause

Nonresident DSPs shall immediately be subject to the VAT under the law 120 days from the effectivity of its implementing rules and regulations.