Revenue Regulations No. 3-2025 (RR No. 3-2025), issued by the Bureau of Internal Revenue (BIR) on January 16, 2025, provides the implementing rules and guidelines for Republic Act No. 12023, also known as the “VAT on Digital Services Act.”
This regulation operationalizes the imposition of a 12% Value-Added Tax (VAT) on digital services in the Philippines, as mandated by RA No. 12023, which amends various sections of the National Internal Revenue Code of 1997. Below is a summary of its key provisions:
Scope and Purpose
RR No. 3-2025 establishes policies and guidelines to enforce VAT on digital services supplied by both resident and nonresident Digital Service Providers (DSPs) to consumers in the Philippines. It aims to level the playing field between local and foreign providers by ensuring tax compliance in the digital economy.
Key Definitions
- Digital Services: Services delivered over the internet or electronic networks using information technology, where the supply is essentially automated. Examples include online search engines, marketplaces, cloud services, online media, advertising, platforms, and digital goods.
- Digital Service Provider (DSP): A resident or nonresident entity supplying digital services subject to VAT in the Philippines.
VAT Liability
- DSPs, regardless of residency, are responsible for assessing, collecting, and remitting the 12% VAT on digital services consumed in the Philippines.
- Services are considered “consumed in the Philippines” if the buyer uses them within the country, even if provided by a nonresident DSP with no physical presence.
Coverage and Transactions
- Applies to both Business-to-Business (B2B) and Business-to-Consumer (B2C) transactions.
- B2B: Direct supply of digital services to a buyer in the Philippines.
- B2C: Services facilitated through online marketplaces or e-marketplaces involving nonresident sellers.
- Excludes physical goods imported into the Philippines, which are subject to customs duties and taxes under other laws.
Compliance Requirements
- Registration: Nonresident DSPs must register with the BIR within 60 days from the regulation’s effectivity (by April 1, 2025). VAT liability begins 120 days after effectivity (June 1, 2025).
- Invoicing: VAT-registered nonresident DSPs must issue digital sales or commercial invoices with specific details, replacing some traditional invoicing requirements.
- Withholding: Certain transactions may be subject to VAT withholding under Section 114(D) of the Tax Code.
Exemptions
- Digital educational services (e.g., online courses, webinars) offered by recognized institutions and subscription-based services sold to government-accredited educational entities are exempt from VAT.
Enforcement and Penalties
- Post-Audit and Verification: The BIR can audit B2B and B2C transactions and verify nonresident DSPs’ gross sales through third-party sources. Discrepancies must be settled, or penalties apply.
- Suspension or Closure: Non-compliant DSPs face suspension or takedown orders, including blocking of services, enforced by the Department of Information and Communications Technology (DICT) via the National Telecommunications Commission (NTC).
- Penalties: Violations incur fines, administrative sanctions, and potential criminal charges under the Tax Code and the BIR’s Run After Tax Evaders (RATE) program.
Effectivity
- RR No. 3-2025 took effect on February 1, 2025, 15 days after its publication on January 17, 2025.
This guide provides a general overview of the above transactions at the time of writing only and is not intended to be a comprehensive legal advice. This should also not be taken as an opinion on the topic. For more details and information, you may coordinate with any GVES Law Partner regarding the matter.
Atty. John Henley Godinez is a Partner of GVES Law.