Implementing regulations for RA 12023 or the VAT on Digital Services Act

This regulation operationalizes Republic Act No. 12023, known as the "VAT on Digital Services Act," which amends various sections of the National Internal Revenue Code of 1997 to include digital services within the VAT system.  

Scope and Coverage 

RR No. 3-2025 applies to both resident and nonresident digital service providers (DSPs) engaged in the sale, supply, or delivery of digital services consumed in the Philippines. The regulation distinguishes between business-to-business (B2B) and business-to-consumer (B2C) transactions, outlining specific compliance requirements for each category.  

1. Business-to-business (B2B) transactions – Entities directly supplying or delivering digital services to a buyer located in the Philippines. 
2. Business-to-consumer (B2C) transactions - Entities operating as an online marketplace or e-marketplace for transactions involving nonresident sellers or suppliers through their platform. 
    

Definition of Digital Services and DSPs 

The regulation defines "digital services" as services delivered over the internet or electronic networks, utilizing information technology, and predominantly automated. This encompasses online search engines, online marketplaces or e-marketplaces, cloud services, online media and advertising, digital platforms, and digital goods. A "Digital Service Provider" refers to any entity, resident or nonresident, that supplies digital services to buyers in the Philippines.  

The Revenue Regulation applies to non-resident digital service providers offering services to consumers within the Philippines. The regulation encompasses a broad spectrum of digital services, including but not limited to: 

• Streaming services (e.g., movies, music, and television shows) 
• Online advertising 
• Digital subscriptions 
• E-books and other digital publications 
• Online gaming 
• Cloud services 

VAT Imposition and Compliance Obligations 

A standard VAT rate of 12% is imposed on the gross sales derived by DSPs from the sale or exchange of digital services in the Philippines. For nonresident DSPs, services are considered rendered in the Philippines if consumed by buyers located within the country. Both resident and nonresident DSPs are mandated to register with the BIR. Nonresident DSPs are not required to appoint a local representative but may do so for purposes such as receiving notices, record-keeping, and filing tax returns.  

The following digital service transactions shall be exempt from VAT: 

1. Educational services, including online courses, online seminars, and online training rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commissions on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA), and those rendered by government educational institutions; 
2. Sale of online subscription-based services to DepEd, CHED, TESDA and educational institutions recognized by the said government agencies; and 
3. Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank intermediaries that are rendered through different digital platforms. This includes Virtual Asset Service Providers (VASPs) registered and classified by BSP as Non-Bank Financial Institutions. 

Tax Filing and Payment Procedures 

1. Resident VAT-registered DSPs are required to file VAT returns and remit the VAT due in accordance with existing laws and regulations.
   
    However, if the resident VAT-registered DSP is classified as an e-market place with nonresident participating merchant or seller, it shall also be liable for (i) electronically filing the required remittance return; and (ii) withholding and remitting the twelve percent (12%) VAT due on the gross sales received by its nonresident participating merchant or seller relating to sale of digital services consumed or used in the Philippines within ten (10) days following the end of the month the withholding was made in accordance with Sections 108 (A) and 114 (C) of the Tax Code.
    
2. In B2B transactions involving nonresident VAT-registered DSPs, Philippine-based businesses, including government entities, are responsible for withholding and remitting the 12% VAT on their purchases of digital services within ten (10) days following the end of the month the withholding was made in accordance with Sections 108 (B), 114 (C) and (D), and 245 (j) of the Tax Code. The withheld VAT shall be considered as input VAT or part of the cost or expense, as the case may be, on the part of the withholding buyer. 
   
   While in B2C transactions, nonresident VAT-registered DSPs must file VAT returns and pay the VAT due through a simplified pay-only regime via the BIR's Virtual Digital Service (VDS) Portal based on its gross sales relating to the sale of digital services consumed or used in the Philippines within twenty-five (25) days following the close of each taxable quarter, in accordance with Sections 108-B and 114 (A) of the Tax Code. All electronic payments and remittances must be made in Philippine Peso.  

Invoice Issuance and Record-Keeping 

1. Resident VAT-registered DSPs are obligated to issue sales or commercial invoices for every transaction involving digital services.  
2. Nonresident VAT-registered DSPs must include specific information in their invoices, such as the date of the transaction, transaction reference number, buyer identification, a brief description of the transaction, and the total amount indicating that it includes VAT. These invoices can be electronic and do not require registration with the BIR, provided they meet the specified content requirements.  

Penalties and Enforcement 

Non-compliance with RR No. 3-2025 may result in the suspension or closure of business operations in the Philippines. The BIR is authorized to issue closure or takedown orders against DSPs that fail to register or comply with the regulation. Penalties, including fines and other sanctions, will be imposed in accordance with the Tax Code and existing laws.  

Transitory Provisions 

Nonresident DSPs required to register under this regulation must do so within 60 days from its effectivity and will be subject to VAT 120 days after the regulation's effectivity.  

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