In October 2024, Pres. Ferdinand Marcos Jr. signed into law the Digital Services Act (likewise known as Republic Act No. 12023 or the Value-Added Tax on Digital Services Law) which aims to expand the existing 12% VAT to digital service providers. RA 12023 amends the National Internal Revenue Code of 1997 (Tax Code) to include digital service providers (DSPs) under the VAT regime.
The coverage includes all digital services consumed in the Philippines by digital service providers regardless of whether the service provider is local or foreign. This includes popular services such as Netflix, Apple TV, YouTube Premium, Spotify and Amazon. Previously, these services are not covered or exempted from the usual 12% VAT consumers have to pay when purchasing goods and services.
The 12% VAT on digital services will finally be implemented starting June 1, 2025.
What is it about?
The law is not a new tax but a measure to close gaps in the tax system caused by the digital economy’s rapid growth. It ensures that foreign digital platforms contributing to the Philippine market pay their fair share of taxes, promoting fairness and competition.
The government also allocates 5% of the VAT collected from digital services over five years to support the local creative industry, and hopefully help Filipino digital creators.
This has got to do with the Republic Act No. 11904, also known as the “Philippine Creative Industries Development Act,” which establishes a council to promote and support the growth of the country’s creative industries. It aims to develop and digitalize creative sectors by granting access to digital services and training platforms, fostering innovation and economic growth within these industries.
What are affected?
All digital services provided by local and international companies that are consumed in the Philippines will be meted with the additional 12% VAT. This includes, but not limited to:
Streaming Services:
* Netflix
* Amazon Prime Video
* Spotify
* Viu
* Disney+
* VivaMax
* HBO Go
* Max
* CrunchyRoll
* Hulu
* Pornhub Premium
Digital Content:
* Google Play Store
* Apple iTunes Store
* Steam
* Codashop
* Garena Top-up Center
* Razergold
Software as a Service (SaaS):
* Microsoft 365
* Adobe Creative Cloud
* Amazon Web Services
* Google for Work
* Cloudflare
* VPN services
* Shopify
* Google Drive
* Dropbox
Freelance Services
* UpWork
* Fiverr
* Freelancer.com
Advertising Services
* Facebook Ads
* Google Ads
* Tiktok Boost
* IG Boost
Digital Service Providers (DSPs) must register with the BIR, issue VAT invoices or receipts showing the VAT separately, collect the 12% VAT from customers, file VAT returns, and remit the collected tax regularly.
Non-resident DSPs must register within 60 days from the regulation’s effectivity and comply with VAT 120 days thereafter
Who are exempted?
Educational services such as online courses, seminars, and trainings provided by private or government institutions accredited by DepEd, CHED, or TESDA, including subscription-based services sold to these agencies, are VAT-exempt. Additionally, services offered by banks, non-bank financial intermediaries with quasi-banking roles, and similar entities-even when delivered via digital platforms-are also exempt from VAT.
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