Philippines: Proposed legislation for taxation of digital services

Philippines: Proposed legislation for digital services

A bill (HB No. 7425) pending in the lower house would address the taxation of digital services and transactions.


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The current value added tax (VAT) law does not specifically mention online or electronic transactions. The bill would introduce amendments imposing VAT at a rate of 12% on sales by digital service providers (whether resident or non-resident) of goods that are digital or electronic in nature and on services electronically rendered in the Philippines.

Digital services

Digital services would be defined as services delivered or subscribed over the internet or other electronic network, and that cannot be obtained without the use of information technology. This definition contemplates online licensing of software, webinars, search engine services, social networks, and the provision of digital content and information, among others.

The bill would include the following in the definition of sales of services:

  • The supply of advertising space and other services for the purpose of online advertisement
  • The supply of digital services in exchange of a regular subscription fee
  • The supply of electronic or online services that can be delivered through an IT infrastructure such as the internet

Imposition of the 12% VAT on digital transactions would not include electronic or online sale, importation, printing or publication of books and newspapers, magazines, reviews or bulletins that appear at regular intervals with fixed prices or subscription and sale and that are not devoted principally to the publication of paid advertisements.

Digital services provider

For these purposes, a “digital services provider” would be defined as a provider of digital services or goods, whether residents or non-residents of the Philippines, through operating an online platform or by making transactions for the provision of digital services to a buyer (defined as any person who resides in the Philippines and who acquires taxable digital services in the Philippines either for personal consumption or for business purposes). A digital services provider may include: 

  • A third party that sells products for its own account, or for others as an intermediary through information-based technology or the internet
  • A platform provider for promotion/marketing messages through internet
  • A host of online auctions conducted through the internet
  • A supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the product or service
  • A supplier of goods or online services that can be delivered through an information technology infrastructure, such as the internet

VAT registration requirement

Under the bill, a nonresident digital services provider would be required to register as a VAT taxpayer if its gross sales for digital services for the past 12 months before the date for filing the VAT return have exceeded PHP 3 million (approximately U.S. $62,000) or if there are reasonable grounds to believe that the gross sales of its digital services for the next 12 months from the date of filing of the VAT return will exceed PHP 3 million.

A feature of the bill is that nonresident digital services providers would be prohibited from claiming input tax as credits against output VAT liability.

VAT-registered nonresident digital services providers would be required to collect and remit the VAT for its electronic transactions. It appears that nonresident digital services providers that are not VAT registered would be subject to 12% withholding VAT on services rendered in the Philippines.

Read a September 2020 report prepared by the KPMG member firm in the Philippines

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