The recently enacted VAT digital service law in the Philippines(Republic Act 12023) aims to level the playing field for local businesses by imposing a 12% Value Added Tax (VAT) on non-resident digital service providers (DSPs) operating in the Philippines.
Affected Services:
The VAT digital service law in the Philippines will apply to a wide range of digital services, including:
- Online advertising services
- Digital subscription services
- Downloadable digital content
- Cloud services
- Online marketplaces
Affected digital services include Netflix, Disney Plus, HBO Go, Google, and other online marketplaces such as Lazada, Shopee, and Amazon.
Exemptions for the VAT digital service law in the Philippines:
- Educational and Public Interest Services: Online courses, webinars, and other educational offerings recognized by relevant government agencies will be exempt from the VAT.
- Financial Services: Services provided by banks, non-bank financial intermediaries, and other financial institutions will also be exempt.
Key Provisions of the VAT digital service law in the Philippines:
- Definition of Digital Services: Digital services are defined as services delivered or subscribed to over the internet or other electronic networks using information technology.
- Non-Resident DSPs: Foreign digital service providers with gross sales exceeding P3 million in the past year are required to register for VAT.
- Non-Compliance Penalties: Non-compliant DSPs may face temporary blocking of their services.
- Revenue Allocation: 5% of the incremental VAT revenue from DSPs will be allocated to the development of creative industries.
The implementation of the VAT digital service law in the Philippines for non-resident DSPs is expected to generate additional revenue for the Philippine government while ensuring that foreign companies operating in the country contribute to the local economy.
