VAT liabilities of non-resident DSPs

Last year marked a significant chapter in tax reform, with new laws enacted to amend and update the National Internal Revenue Code (Tax Code). Among these is Republic Act (RA) No. 12023, which imposes a 12% VAT on all digital services consumed in the Philippines.

- TONEE ROSE M. PALOΜΕΝΟ

RA 12023 introduced Section 108-A to the Tax Code, outlining the liabilities of persons providing digital services. Whether individual or juridical, resident or non-resident, those who supply or deliver digital services in the Philippines are now responsible for assessing, collecting, and remitting the corresponding VAT on these services, subject to the rules of withholding VAT.

Prior to this law, only resident digital service providers were subject to VAT. With RA 12023, non-resident digital service providers (NRDSPs) are now also liable for VAT.

To implement and clarify certain aspects of the law, specifically on the liabilities of NRDSPs, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 3-2025 and RR No. 14-2025, as well as Revenue Memorandum Circular (RMC) No. 47-2025.

VAT REMITTANCE LIABILITY

Under the law, “a non-resident digital service provider” refers to a digital service provider with no physical presence in the Philippines.

Generally, the liability for VAT remittance of NRDSPs depends on the type of transaction involved:

1. Business-to-Business (B2B) Transactions

In B2B transactions, persons engaged in business are liable for electronically filing the required remittance return and withholding and remitting the 12% VAT due on their purchase of digital services under the reverse charge mechanism. In this case, the NRDSP is not directly liable for remitting the VAT. However, they are still required to file tax returns with the BIR to report their B2B transactions.

2. Business to Consumer (B2C) Transactions

In B2C transactions, where the consumer is not engaged in business, the NRDSP is directly liable for electronically filing the VAT return and paying the VAT due through the simplified pay-only regime in the VAT on Digital Services (VDS) Portal.