Philippines Proposes the Introduction of VAT Obligations for Foreign Digital Service Providers

Since 2021, the Philippine Government has been working to introduce and impose VAT on digital services supplied by non-resident Digital Service Providers (DSPs) to consumers (both B2B and B2C transactions) based in the Philippines.

The Philippine Government is in the course of enacting Bill 4122, which requires non-resident DSPs to collect and remit VAT on the sale of digital services - such as online advertisement services and provision of digital advertising space, digital services in exchange for a subscription fee, and supply of other electronic and online services that can be delivered through the internet - to Philippine consumers.

The Bill will be applicable within 180 days (~6 months) from the moment when it becomes effective. It’s expected that the obligation for foreign DSPs to levy VAT on the sale of digital services should start in the summer of 2023.

Timeline

The precise applicability of the Bill is still pending the legislative procedure by the Senate. If the Senate approves the Bill already accepted by the House of Representatives, the expected date for the changes to apply should be around summer 2023.

Impact

The Bill introduces an obligation for foreign DSPs (marketplaces, intermediaries, foreign suppliers) to levy VAT on B2B and B2C transactions when the buyer is located in the Philippines and/or the digital service is consumed within the country.

The VAT rate, which will be imposed on the sale of digital services by foreign DSPs, shall be 12%.

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