Tax
June 2025: Guide to the New 12% VAT on Digital Services PH
Posted by
on12 Aug 2025
If you're a freelancer, small business owner, or someone who regularly uses apps like Canva, Zoom, Adobe, or even Spotify for your work or business, this update from the BIR isn't something you can ignore.
Starting June 2, 2025, the Philippines is enforcing a 12% Value-Added Tax (VAT) on non-resident digital service providers (NRDSPs), following Revenue Regulation No. 3-2025 and Republic Act No. 12023 (also known as the Digital Tax Law). Foreign digital service providers offering paid services to Philippine consumers must now register through the BIR eServices Portal or the VDS Portal, and begin charging VAT.
What Changed: Quick Overview of the Digital VAT Rule
This regulation applies to foreign platforms offering paid digital services in the Philippines. Some of the most common examples:
- Canva Pro, Notion, Adobe Creative Cloud, Google Workspace
- Meta Ads (Facebook, Instagram), LinkedIn Ads
- Netflix, Spotify, YouTube Premium
- Zoom, Dropbox, Figma, Slack, Zapier
These foreign platforms are now required to register with BIR for VAT purposes and file taxes in the Philippines. The BIR requires them to file taxes locally through Form 2550-DS, with reporting to be done quarterly unless otherwise chosen.
Who’s Affected?
This regulation doesn’t only apply to big companies — it affects freelancers, SMEs, and even consumers:
- Freelancers using design or productivity tools (e.g. Canva, Zoom
- E-commerce sellers running ads on Facebook or Google
- SMEs relying on cloud storage or SaaS
- Regular consumers subscribing to Netflix, Spotify, etc.
It’s also relevant to local startups using CRMs, marketing platforms, analytics tools, or even collaboration software hosted abroad. Even international transactions made via app stores and online marketplaces can be impacted.
The law states that these platforms must now collect and remit 12% VAT on digital services provided to users in the Philippines.
How It Works: B2C vs. B2B
B2C (Individual Consumer):
- The digital platform (e.g. Canva, Meta) will collect 12% VAT and remit it to the BIR through Form 2550-DS.
- The consumer doesn’t file anything, but will see price changes.
B2B (Business Entities):
- Under the reverse charge mechanism, business consumers are required to withhold and remit the 12% VAT to the BIR using Form 1600-VT.
- If the buyer is VAT-registered, they may claim the VAT as input tax
What is a Reverse Charge Mechanism?
Normally, it is the seller is responsible for charging VAT on their sales and remitting it to the BIR.
Under the reverse charge mechanism, this responsibility shifts to the buyer, who must report and pay the VAT directly to BIR, instead of the seller.
What to Do Next
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List your subscriptions – Take stock of all foreign digital tools you pay for.
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Check your invoices – Look out for any changes in pricing or tax lines. Make sure the invoice includes VAT info so you can claim input tax if eligible.
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File correctly – If you're running a business, you're responsible for withholding and remitting VAT using BIR Form 1600-VT.
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Adjust budgets – Ads and SaaS tools may get more expensive with VAT. Calculate the impact on your margins or ad performance.
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Train your finance team – For SMEs and agencies, ensure your accounting team understands how to treat VAT under this rule.
What Happens If You Don’t Comply
If you're a business and don’t withhold or file properly:
- You cannot claim input VAT
- Non-compliance could lead to penalties, surcharges and interest charges.
If you’re a foreign DSP and fail to register:
- BIR will impose applicable penalties
- Your business operation in the Philippines may be suspended
Frequently Asked Questions (FAQs)
Q: What counts as a digital service?
A: According to RR 3-2025, digital services refer to any services 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. It shall include, but not limited to:
- Streaming platforms (e.g., Netflix, Spotify)
- Online marketplaces and apps (e.g., Canva, Google Workspace)
- SaaS products and cloud services
- Online ads (e.g., Facebook Ads, Google Ads)
- E-books, games, and in-app purchases
- Other services delivered electronically
Q: How can I claim for input VAT for my purchases from NRDSPs?
A: If you are a VAT registered business, your input VAT shall be reflected on your quarterly VAT return (BIR Form 2550Q) and the filed withholding VAT return (BIR Form 1600-VT) shall be your proof to claim input VAT.
Q: I am an individual consumer, do I need to file anything?
A: No. If you're an individual using digital services for personal use, VAT will be automatically included in the price by the registered DSP. You don’t need to file or remit anything.
Q: Do small businesses need to comply with the reverse charge?
A: Yes. All businesses, regardless of size, must apply the reverse charge mechanism when purchasing digital services from Non Resident Digital Service Provider (NRDSP).
Q: What services are exempt from VAT?
A: The following are exempt from VAT on digital services:
- Educational services, including online courses, online seminars, online trainings by private educational institutions, duly accredited by DepEd, CHED, TESDA and those rendered by government institutions.
- Sale of online subscription-based services to by DepEd, CHED, TESDA and educational institutions recognized by the said government agencies.
Q: Can Non Resident Digital Service Provider (NRDSP) claim input VAT?
A: No. NRDSP are not allowed to claim input VAT. They are required only to collect and remit output VAT.
Final Thoughts
This isn’t a minor policy shift — it’s a nationwide shift in how VAT is collected on digital services. It changes the way foreign platforms interact with Filipino consumers and businesses, and it matters more than you might think.
For SMEs, freelancers, and local startups, it means watching out for cost changes and knowing when you're responsible for filing or withholding VAT. Even a simple $10/month subscription now has tax implications for your budget, records, and compliance.
On the flip side, this move gives the BIR new revenue channels, aligns the Philippines with global tax norms, and helps formalize our fast-growing digital economy.
At Accountable PH, we simplify complex BIR regulations so you don’t have to stress about compliance. Whether you're running a startup, freelancing full-time, or scaling your e-commerce brand — we’ve got your back.
Let us do the math, so you can focus on what matters. Get in touch with us to learn more or get expert help with your filings.
Tags:
Services, Bir, Small business, Tax, Vat
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