REVENUE REGULATIONS (RR) NO. 03-2025
Republic Act (RA) No. 12023 covers persons who, in the course of trade or business, supply or deliver digital services in the Philippines. The law does not cover the importation of goods subject to customs duties, taxes, and other charges under applicable laws, rules, and regulations. The Bureau of Internal Revenue (BIR) recommended approval of Revenue Regulations No. 3-2025 on January 17, 2025, to implement this provision.
Covered Transaction
| Business-to-business(B2B) | Business-to-consumer (B2C) |
|---|---|
| Providing of digital services to natural or juridical persons engaged in business in the Philippines, and the Govemment of the Philippines, including its political subdivisions, instrumentalities and agencies | Providing of digital servtces to persons “not engaged in business* located in the Philippines |
Classification for Tax Compliance Purposes
- DSPs directly delivering or supplying services to a buyer in the Philippines, and/or
- DSPs acting as an online marketplace or e-marketplace on the transactions of nonresident sellers or suppliers that go through its platform; provided:
- It sets directly or indirectly any of the terms and conditions under which the supply of digital services is made, or
- It involves the ordering or delivery of digital services, whether directly or indirectly.
Taxability of Gross Sales of DSPs Resident and non-resident DSPs shall be liable for a VAT levied, assessed and collected equivalent to twelve percent (12%) of the gross sales from the sale and exchange of services in the Philippines.
Digital Services rendered by a non-resident shall be considered performed, rendered, supplier or delivered in the Philippines if such digital services are consumed in the Philippines. Consequently, it may be presumed that the digital services are consumed in the Philippines if the buyer is located in the Philippines. Additionally, this regulation provides for the following information indicative whether the digital services are consumed in the Philippines:
- Payment information; or
- Residence information of the buyer; or
- Access information; or
- Any other information to establish the most reliable determination of the buyer’s location like business agreement or predominant place of consumption.
For purposes of this regulation, an underlying question as to what constitutes gross sales of Non-resident DSPs for purposes of VAT computation was answered.
This regulation provides that Gross Sales shall mean “total sales” of digital services by nonresident DSPs through B2B and B2C transactions denominated in Philippine Peso. However, in instances that payment made was in foreign currency, this regulation provides that the same shall be converted to Philippine Peso using the following currency:
- Spot rates based on the Banker’s Association of the Philippines (BAP); or
- Should the foregoing rates are impractical or not feasible, another exchange rates as provided by Banko Sentral ng Pilipinas (BSP), Bllomberg, Reuters, etc., may be used provided:
- That statement providing the rationale for use of this is provided in the VAT on Digital Services (VDS) Portal
- Allow BIR to have access to foreign rates used for verification and validation
- The source of foreign exchange rates, such as the URL/source where this rate was published and listed, together with other supporting documents, shall be submitted to the BIR for verification and validation.
Please note, however, that the election of basis of conversion for the foreign exchange rate is “irrevocable” and must be “used consistently” for those purposes for “at least one taxable year.”
Registration Requirement for DSPs
| Resident DSPs | Nonresident DSPs |
|---|---|
| Register with the BIR following the policies and procedures under Sec 236 of the Tax Code. They will be subject to VAT on supplies of digital services as from the effective date of the regulation. | A nonresident DSP does not need to have a local representative in the Philippines, although it may appoint a resident third-party service provider — for purposes of receiving notices, record keeping, filing of tax returns and other reporting obligation. For VAT purposes, appointment of a third-party service provider shall not classify the nonresident DSP as a nonresident foreign corporation doing business in the Philippines. Lastly, it will need to register with the BIR within the period prescribed under Sec 236 of the Tax Code through VDS Portal and submit the prescribed information. |
In case of non-compliance, the CIR will have the power to block the digital services of a digital service provider with the assistance of the Department of Information and Communications Technology (DICT), through the NTC pursuant to Section 12 of RR No. 3-2025.
Requirements on filing of tax returns and payment and remittance of VAT
| Filing VAT Return | Pay VAT | Filing of Remittance Return | Withholding of VAT | |
|---|---|---|---|---|
| Resident VAT-registered DSPs | ||||
| E-marketplace* | ✔ | ✔ | ||
| Non-e-marketplace | ✔ | ✔ | ||
| Nonresident VAT-registered DSP | ||||
| B2B transaction**/E-marketplace | ✔ | ✔ | ||
| B2C transaction | ✔ | ✔ | ||
| Unregistered Nonresident DSPs | ✔ | ✔ |
*Wth non-resident participating merchant or seller
**WVAT may be considered as input VAT or part of the cost or expenses, as the case may be, on the patt of the withholding buyer
In cases where a nonresident VAT-registered DSP, acting in good faith and having made reasonable efforts to obtain the appropriate evidence, is unable to establish the status of its buyer, it shall be presumed that its buyer is not engaged in trade or business, in which case, the nonresident VAT-registered DSP shall file and remit or pay the tax due, pursuant to the prescribed rules and procedures above.
Who can claim Input Tax?
| Can claim input VAT? | |
| Resident VAT-registered DSPs | ✔ |
| Nonresident VAT-registered DSP | x |
| VAT registered buyer | ✔ |
| Non-VAT re istered buyer | x |
Conduct of Post Audit and Verification by the BIR
| All parties to B2B and B2C transactions within the Philippines | Nonresident VAT Registered DPS |
| Shall be subject to post-audit and examination by the BIR pursuant to the provisions of the Tax Code and its implementing revenue issuances. | BIR may also conduct verification from third-party sources on whether they are correctly declaring their gross sales and that of their customers for VAT purposes. The BIR shall inform the nonresident DSP of any discrepancy discovered and provide them with the opportunity to immediately settle it; otherwise, they shall be held liable under Sections 12 (on the Suspension or Closure of Online Business Operations and 13 Penalties of RR No. 3-2025. |
Issuance of Invoice
- Resident VAT-registered DSPs must issue sales or commercial invoices for every digital service transaction under Section 113 of the Tax Code,
- Nonresident VAT-registered digital service providers are required to issue digital invoices containing transaction details, in lieu of the requirements under Section 113 of the Tax Code, such as the date, reference number, consumer identification, transaction description, total amount including VAT, and, if applicable, a breakdown of taxable, exempt, zero-rated components with VAT calculations. Consequently, they can issue electronic invoices without BIR registration or authority to print (ATP). These invoices must be in English or have an English translation and include all required details aforementioned.
Accounting Records
- All persons subject to VAT under sections 106 and 108 of the Tax Code except nonresident registered DSP shall maintain regular accounting records, including subsidiary sales journal and subsidiary purchase journal on which the daily sales and purchases are recorded.
Value Added Tax (VAT) Exemption
- Educational services, including online courses, online seminars and trainings rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA) and those rendered by government educational institutions;
- Sale of online subscription-based services to DepEd, CHED, TESDA and educational institutions recognized by said government agencies; and
- Bank services, non-bank financial intermediaries performing quasi-banking functions and other non-bank intermediaries that are rendered through different platforms. This includes Virtual Asset Service Providers (VASP) registered and classified by BSP as Non-Bank Financial Institutions.
Penalties for Non-Compliance
- Violation of any provisions of these Regulations shall be subject to the imposition of penalties and the institution of appropriate criminal, civil, and administrative charges against erring DPs and their responsible officers under the Tax code, existing laws, rules, and regulations.
Lastly, we respectfully invite your attention to the following links for your consideration. The provision of these resources is intended to facilitate a thorough understanding of the subject matter at hand.