VAT on Foreign Digital Services Is Not a New Tax, Says BIR

The Bureau of Internal Revenue (BIR) clarified on Thursday that the imposition of value-added tax (VAT) on digital services provided by foreign entities is not a new tax but an effort to level the playing field between local and foreign digital service providers. This statement follows the signing of Republic Act No. 12023, which applies a 12% VAT on non-resident digital service providers.

BIR Commissioner Romeo Lumagui Jr. emphasized that the new law ensures that foreign digital businesses pay the same VAT that local digital businesses are already subject to, promoting fair competition. “This is not a new tax. RA No. 12023 only ensures that the VAT being paid by local digital businesses will also be paid by foreign digital businesses,” Lumagui said.

President Ferdinand Marcos Jr. signed the law on Wednesday, and the government anticipates collecting P102.12 billion in revenue from 2025 to 2029 as a result of the tax.

Under the law, foreign digital service providers with annual sales exceeding P3 million must register for VAT and designate a representative office or agent in the Philippines to comply with the Tax Code. Non-compliant businesses risk temporary suspension. Digital services rendered by non-resident providers are considered delivered in the Philippines if they are consumed within the country.

The law applies to a wide range of digital services, including online search engines, e-marketplaces, cloud services, online media, advertising platforms, and digital goods.