Navigating New VAT Rules in the Philippines: What Digital Businesses Need to Know
Navigating New VAT Rules in the Philippines: What Digital Businesses Need to Know
As of June 2, 2025, the Philippines implemented new VAT regulations for digital businesses. A 12% VAT now applies to all digital services sold to customers in the country, regardless of whether the business is a non-resident digital service provider or based locally.
This shift reflects a broader global trend towards place of supply (POS) rules for electronically supplied services, aligning tax obligations with customers’ locations.
New VAT Regulations for B2C Digital Services
Previously, foreign sellers supplying digital services in the Philippines were not subject to VAT. The new rules aim to reduce the tax gap by imposing obligations on non-resident digital service providers (NRDSPs).
From June 2nd, all business-to-customer (B2C) providers of online services in the country must now apply VAT - currently set at 12% - at checkout.
Business-to-business (B2B) transactions are subject to withholding obligations. For a transaction to be considered B2B, the NRDSP must obtain the buyer’s tax identification number ‘TIN’ and include a checkbox in their checkout for customers to confirm that they are engaged in business in the Philippines.
All NRDSPs with an annual gross sales worth more than 3million Philippines Pesos (~ €45,000) are now required to register with the Philippines tax authorities. This has proven to be a considerable challenge as at the time that the new regulation came into effect, the online registration system was not operational, meaning non-resident digital service providers were unable to comply with this requirement. At the time of writing, the registration portal is still not operational, but it is expected to be available shortly.
To ensure end-to-end compliance, businesses operating in the country should ensure their tax determination and invoicing systems are updated to reflect the new requirements. Non-compliance could result in penalties and service disruptions for customers in the region.
Place of Supply Regulations: A Global Trend
The Philippines joins a growing list of countries adopting place of supply VAT rules for digital services. The European Union introduced similar rules in 2015 to account for the revenue created by these types of international services. To date, there are more than 100 countries with similar regulations.
VAT is implemented on a range of online services, including streaming, software subscriptions, cloud services, online media and advertising, and digital goods used in the country. Some jurisdictions also implement marketplace facilitation rules, making the marketplace or electronic platform that facilitated a transaction the liable party for VAT collection, remittance, and reporting.
This dynamic global landscape of ever-changing VAT requirements can be challenging for indirect tax teams. The adoption of destination-based taxation obligations form part of a wider global effort to modernize tax frameworks in response to the growing online economy. As more countries follow suit, staying ahead of evolving VAT requirements is essential.
Vertex can help. Our tax technology and e-commerce solutions are designed to simplify global VAT compliance, covering new compliance requirements and automation opportunities.
Contact us to find out how we can support your digital business.
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