REPUBLIC ACT (RA) NO. 12023 INCLUSION OF “DIGITAL SERVICES” IN THE SCOPE OF SERVICES SUBJECT TO VALUE-ADDED TAXES (VAT)

6 November 2024

Republic Act (RA) No. 12023 (An Act amending Sections 105, 108, 109, 110, 113, 114, 115, 128, 236, and 288 and adding new Sections 108-A and 108-B of the National Internal Revenue Code (NIRC) of 1997, as amended) was signed into law by President Ferdinand "Bongbong" Marcos Jr. on October 02, 2024. The new law amended the provisions of the NIRC, as amended, which govern the imposition of VAT to include in its scope the sale, barter, or exchange of digital services in the Philippines.

TAKE NOTE:

“Digital Services” shall refer to any service that is supplied over the internet or other electronic network with the use of information technology and where the supply of the service is essentially automated. Digital services shall include:
- Online search engine;
- Online marketplace or e-marketplace;
- Cloud services;
- Online media and advertising;
- Online platform; or
- Digital goods.
“Digital Service Provider” refers to a resident or nonresident supplier of digital services to a consumer who uses digital services subject to value-added tax in the Philippines.
“Nonresident Digital Service Provider (NR-DSP)” means a digital service provider that has no physical presence in the Philippines [Sec. 108-A, NIRC, as amended].
- Digital services delivered by NR-DSPs shall be considered performed or rendered in the Philippines if the digital services are consumed in the Philippines [Sec. 105, par. 4].

TRANSACTIONS EXEMPT FROM 12% VAT ON DIGITAL SERVICES

Educational services, including online courses, online seminars, and online 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; and sale of online subscription-based services to DepEd, CHED, TESDA, and educational institutions recognized by said government agencies [Sec. 109 (H)]; and
Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, including those rendered through different digital platforms [Sec. 109 (V)].

WHO ARE LIABLE FOR THE REMITTANCE OF 12% VAT ON DIGITAL SERVICES?

General Rule (GR): Digital Service Providers (Resident and Nonresident) (Sec. 108-A)

			Consumer
			VAT registered	Non-VAT registered
Digital Service Provider	Resident	VAT registered	Resident Digital Service Providers (R-DSP) (12% VAT)
		Non-VAT registered
	Nonresident	VAT registered ^(a)	Consumer ^(b)(c) (12% WVAT)	NR-DSP ^(d) (12% VAT)
		Non-VAT registered		NR-DSP (based on GR; No specific provision in RA 12023)

^(a) If a VAT-registered NR-DSP is classified as an online marketplace or e-marketplace, it shall also be liable to remit the value-added tax on the transactions of nonresident sellers that go through its platform: Provided, that it controls key aspects of the supply and performs any of the following:

It sets, either directly or indirectly, any of the terms and conditions under which the supply of goods is made; or
It is involved in the ordering or delivery of goods, whether directly or indirectly. [Sec. 108-B, par. 2]

^(b) Payments for services to nonresident suppliers who are not registered under Section 236 shall be subject to twelve percent (12%) withholding tax at the time of payment [Sec. 114(C)].

^(c) A VAT-registered taxpayer shall be liable to withhold and remit the VAT due on its purchase of digital services consumed in the Philippines from NR-DSPs to the Bureau of Internal Revenue, within ten (10) days following the end of the month the withholding was made [Sec. 114(D)].

^(d) A NR-DSP required to be registered for value-added tax (VAT) under Section 236(F) of this Code shall be liable for the remittance of value-added tax on the digital services that are consumed in the Philippines if the consumers are non-VAT registered [Sec. 108-B, par. 1].

CAN VAT ON DIGITAL SERVICES BE CLAIMED AS CREDITABLE INPUT TAX?

GR: Yes.
Exception (XPN): NR-DSPs shall not be allowed to claim creditable input tax. [Sec. 110]

NEW REQUIREMENTS IMPOSED ON DIGITAL SERVICE PROVIDERS:

Mandatory/voluntary VAT registration [Sec. 236(F)]
- The BIR shall establish a simplified automated registration system for NR-DSPs.
- Consequence of non-registration: The power of the Commissioner to suspend shall include the blocking of digital services performed or rendered in the Philippines by a digital service provider. This shall be implemented by the Department of Information and Communications Technology (DICT), through the National Telecommunications Commission (NTC). [Sec. 115]
Digital sales or commercial invoice (for VAT-registered NR-DSPs)
- To be issued for every sale, barter or exchange of digital services made by a VAT registered NR-DSP.
- Required information [in lieu of the requirements listed under Sec. 113(b)(1-4)]:
  1. Date of the transaction;
  2. Transaction reference number;
  3. Identification of the consumer;
  4. Brief description of the transaction; and
  5. The total amount with the indication that such amount includes the value-added tax.
    - Provided, that if the sale of digital services includes some services which are subject to VAT, and some that are VAT zero-rated, or VAT-exempt, the invoice shall clearly indicate the breakdown of the sale price by its taxable, VAT-exempt, and VAT zero-rated components:
    - Provided, further, that the calculation of the VAT on each portion of the sale shall be shown on the invoice. [Sec. 113(B)(5)]
VAT-registered NR-DSPs are exempt from the accounting requirements (i.e., maintenance of subsidiary sales and purchase journals) provided under Sec 113(C) of the NIRC, as amended. [Sec. 113(C)]

DISPOSITION OF INCREMENTAL REVENUES [Sec. 288]

FIVE (5) YEAR PERIOD (from the effectivity of this Act)	DISPOSITION
DURING	Five percent (5%) of the incremental revenue from the value-added tax on digital service providers under Section 108 shall be allocated to and used exclusively for the development of creative industries, as defined under Republic Act No. 11904, otherwise known as the "Philippine Creative Industries Development Act," for five (5) years from the effectivity of this Act
AFTER	Upon the lapse of the five (5)-year period, all such incremental revenues shall accrue to the General Fund."

OTHER CLAUSES TO NOTE:

MODE OF CORRESPONDENCE (Sec. 13, RA 12023)	Any communication, notice, or summons to a NR-DSP can be made via electronic mail messaging.
TRANSITORY CLAUSE (Sec. 14, RA 12023)	NR-DSPs shall immediately be subject to value-added tax under this Act after one hundred twenty (120) days from the effectivity of the implementing rules and regulations.
IMPLEMENTING RULES AND REGULATIONS (Sec. 15, RA 12023)	The Department of Finance (DOF), upon the recommendation of the BIR, and in coordination with the DICT and the NTC, and upon consultation with the stakeholders, shall issue rules and regulations for the effective implementation of this Act not later than ninety (90) days from the effectivity of this Act.
EFFECTIVITY (Sec. 18, RA 12023)	This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in a newspaper of general circulation.