[Ask The Tax Whiz] Rules for VAT on Digital Services

The Philippine Tax Whiz explains the recently issued Revenue Regulations 3-2025, which outlines the policies and guidelines for implementing Republic Act (RA) 12023, imposing a 12% VAT on digital services

Which digital services are covered Under Revenue Regulations 3-2025?

According to Revenue Regulations 3-2025, Digital Services refer to services supplied over the internet or electronic networks using information technology, where the supply is essentially automated. These include, but are not limited to:

1. Online Search Engines
2. Online Marketplaces or E-Marketplaces
3. Cloud Services
4. Online Media and Advertising
5. Online Platforms
6. Digital Goods – Intangible goods delivered in digital form, such as:

• Digital content purchases (e.g., e-books, music, videos, software, applications, digital media, e-games, online courses)
• Subscription-based supplies of content (e.g., news, music, streaming media, online gaming, online courses)
• Digital art
• Supplies of software services and maintenance (e.g., antivirus software, digital data storage)
• Licensing of content (e.g., access to specialized online content such as publications, journals, software, cloud-based systems)
• Telecommunication and broadcasting services
• Virtual assets

7. Cloud and IT Infrastructure (e.g., data storage and web hosting)
8. E-Commerce Platforms and Payment Processing
9. Targeted Digital Marketing and Analytics
10. Communication Tools and Collaborative Software
11. E-Learning Platforms and Professional Networking
12. Data Analytics and Artificial Intelligence for Business Insights
13. Cybersecurity and Regulatory Compliance
14. Masking and Encryption Services (e.g., Virtual Private Network [VPN] services)
15. System Maintenance and Optimization for Digital Services
16. Online Consultations Through a Digital Platform (e.g., websites, applications, e-marketplaces)
17. Interactive Media (e.g., online gaming, Augmented and/or Virtual Reality [AR/VR] experiences)

How are Digital Service Providers (DSPs) taxed?

Digital Service Providers (DSPs) are subject to 12% VAT on gross sales from its supply or delivery of digital services in the Philippines, as per Section 108 of the Tax Code.

For nonresident DSPs, digital services are deemed performed and taxable in the Philippines if consumed in the country or if the buyer is located there. A buyer’s location is determined using:

1. Payment details (e.g., credit card, bank account)
2. Residence information (e.g., billing/home address)
3. Access data (e.g., IP address, SIM country code)
4. Other reliable indicators (e.g., contracts, content language)

In case of conflicting data, at least two consistent pieces of evidence are required to confirm consumption in the Philippines.

What are the requirements on filing of tax returns and payment and remittance of VAT for DSPs?

– Rappler.com