Once upon a time, earning online felt like a tax-free dream. You were offering cloud services, selling digital goods, or using foreign digital platforms with little concern. But not anymore.
As digital service transactions grew during the pandemic, services consumed in the Philippines through the internet or other electronic networks caught the attention of the Bureau of Internal Revenue. Under Republic Act 10963 and the digital service tax, even foreign digital service providers are now subject to VAT.
Whether you’re streaming, selling, or coding, if your service is delivered digitally and consumed in the Philippines, it’s likely subject to VAT on digital services. That means you may need to register with the BIR, register for VAT, file a VAT return, and in some cases, withhold tax depending on the transaction.
It’s no longer just about having a business. It’s about knowing how value-added tax applies in the world of foreign digital services.
What is VAT?
What makes a service subject to VAT?
How is VAT different from other taxes?
| Type of Tax | What It Covers | Who Pays |
|---|---|---|
| Value-added tax on digital services | Digital sales or commercial activity and services to consumers | The consumer pays, provider remits |
| Income Tax | Profits or earnings from services performed | The earner or business |
| Service tax in the Philippines | Applies to foreign digital companies and platforms | The non-resident digital service provider |
Who needs to care about this?
- Businesses offering digital services must register for VAT if their sales of digital services exceed ₱3 million yearly.
- Non-resident digital service providers, such as foreign digital companies, are required to register with the BIR, file VAT returns, and issue invoices for each digital sales or commercial invoice.
- Services provided to Filipino consumers, even if performed outside the country, are still deemed rendered in the Philippines and are subject to VAT.
Examples of VAT-able services include:
- Digital content and streaming platforms
- Digital transactions and services via third-party apps
- Cloud services, ad placement, and financial services
- Purchase or supply of digital services like design software
- Digital tools used for business or entertainment
Pro Tip: Whether you’re using digital services or you provide services to clients, VAT can apply. And yes, even that third-party service helping you schedule Instagram posts is now part of the new digital tax landscape.
2025 Updates on the Digital Services Law in the Philippines
If you thought this didn’t apply to you in 2023, think again in 2025. Here’s what’s changing in the digital tax landscape:
1. New law signed, new rules rolling out
- Republic Act No. 12023 (the “VAT on Digital Services Act”), signed in October 2024, adds digital services—especially those consumed in the Philippines—to the VAT system.
- The BIR issued Revenue Regulation No. 3‑2025 in January 2025 to outline the mechanics of applying this new VAT to digital services.
2. When enforcement kicks in & deadlines
- The 12% VAT takes effect on June 2, 2025, for all digital services consumed in the Philippines, whether provided locally or abroad.
- Non-resident digital service providers have deadlines: Use the VDS Portal or ORUS to register by June 1 or July 1, 2025 depending on the update.
3. What’s different from before?
- Extended coverage now includes previously untaxed foreign digital services and streaming platforms.
- Implementation clarity improved with Revenue Memorandum Circulars—RMC No. 47‑2025 refines filing requirements and RMC No. 52‑2025 formalizes the VAT return form (2550‑DS) for nonresident service providers.
4. Who’s newly on the radar?
- Foreign platforms like Canva, Netflix, and cloud services must register with the BIR, pay VAT, and file returns—even without a local presence.
- Local providers and platforms, particularly e-marketplaces, now face clearer rules on withholding VAT and remitting it for nonresident vendors.
So Who Has to Pay the VAT? (Spoiler: Probably You)
If you’re earning money online, the BIR probably wants to meet you.
Whether you’re a freelance designer, Shopify seller, or third-party content creator, the tax on digital services law is now front and center in the digital economy. If a service is essentially automated, performed online, or considered consumed in the Philippines, it falls under the scope of value added tax.
Local and foreign digital service providers must now meet their VAT obligations, which include VAT registration, issuing digital invoices, and filing regular returns.
Groups Most Affected by VAT on Digital Services
1. Freelancers and Creative Agencies
- If you’re supplying digital services, like copywriting or video editing, that service delivered online is performed in the Philippines and subject to VAT.
- Below PHP 3 million in revenue? You may be exempt from VAT, but not from compliance under other tax law.
- Cross the threshold and you’re required to register for VAT, issue invoices, and declare the supply of the service to the BIR.
- Billing in USD? The BIR uses official exchange rates to tax the purchase of digital services made by foreign clients.
2. Online Sellers and E-commerce Stores
- Selling through Shopee, Etsy, or your own site? If the service that is supplied involves digital products or downloads, those services to local customers are taxable.
- Marketplaces may act as a resident third-party service or third-party service provider, but many businesses in the Philippines must still register with the BIR.
- Side hustles on Facebook or Instagram can become taxable once the activity becomes consistent or reaches VAT thresholds.
3. Influencers and Content Creators
- Income from sponsored content, affiliate deals, or digital services to local and international brands counts as a defined service under the law.
- Whether it’s UGC, livestreams, or promo videos, if you’re providing digital services and earning from them, services will be subject to tax.
- As part of compliance, digital service providers must issue VAT-compliant receipts. All service providers must issue invoices for BIR documentation.
What’s the Average Salary in the Philippines in 2025?
Curious about the average salary in the Philippines for 2025? Salaries are projected to rise by 5.5%, with the average monthly income reaching approximately ₱44,800 (around $780). Dive into the full article to explore detailed salary trends and insights
Digital Service Providers Now Taxed
Even if your HQ is in New York or Sydney, serving Filipino customers now means dealing with the BIR.
Under the tax on digital services law, non-resident digital service providers (DSPs) are required to comply with VAT obligations if their services are consumed in the Philippines. If your platform earns from Filipino users, even without a local office, you are expected to register with the BIR, issue digital invoices, and pay the VAT through regular filings.
Who Are These Non-Resident DSPs?
These are companies supplying digital services to the Philippines without being based in the country. Common examples include:
- Netflix, Disney+, Spotify (streaming platforms)
- Canva, Adobe Creative Cloud (digital tools)
- Google Workspace, Dropbox (cloud services)
- Meta, Google Ads (advertising platforms)
- E-learning platforms, online marketplaces, and app stores
These services often fall under automated or electronic delivery, meaning no human intervention is needed to fulfill them. That type of service delivered is clearly subject to VAT under Philippine tax law.
How the BIR Monitors Digital Transactions
Think online cash is invisible? Think again.
The Bureau of Internal Revenue now uses payment trails to track the exchange of digital services. Transactions made through GCash, PayPal, credit cards, or bank transfers are traceable and often reported by third-party service providers. Platforms may also act as intermediaries—collecting tax on behalf of non-resident DSPs or flagging inconsistencies.
E-invoicing requirements and new systems like eTIS and ORUS allow the BIR to verify whether digital service providers issue proper invoices and declare their income accurately. Even platforms with no physical presence in the Philippines are now on file, especially if they’ve reached the registration threshold or provide services to local users.
What This Means for Pricing
Your Digital Service Tax Starter Kit
1. Get a TIN and Register with the BIR
- Local and foreign digital service providers must secure a Tax Identification Number (TIN) and register with the BIR.
- Non-residents can do this through the ORUS or VDS Portal, which simplifies the process for digital businesses without a Philippine office.
2. Prepare Required Documents
- Local businesses: DTI or SEC certificate, valid IDs, proof of address, and business permit
- Non-residents: Proof of legal entity, tax ID in home country, and a registered email. This confirms you’re involved in the exchange of digital services made available to Filipino consumers.
3. Secure Your VAT Registration Certificate
Once approved, you’ll receive your VAT Certificate, confirming you’re authorized to charge VAT on your digital services, which are defined as any service supplied electronically, with minimal human intervention.
4. Issue VAT-Compliant Invoices
Digital service providers must issue invoices that include the 12% VAT. This applies to everything from SaaS subscriptions to ad placements and e-learning tools. Whether you’re supplying services locally or internationally, proper billing is a must.
5. File VAT Returns On Time
Depending on your setup, you’ll file VAT returns either monthly or quarterly. These cover all digital transactions under your registered name and must be filed online via eFPS or other accredited systems.
6. What If You File Late?
Late returns come with penalties, surcharges, and interest. Staying updated on your deadlines avoids unnecessary costs and keeps your business in good standing.
7. Can You Pass the VAT to Clients?
Yes. You can add the 12% VAT to your invoice total. Just make it clear—especially if your clients are also businesses. This is common in contracts involving both local and foreign digital service providers.
Is your digital hustle keeping up with the way the world works?
The digital world has changed. Tax rules are catching up fast.
With the Philippines now enforcing value-added tax on digital services, what used to be informal online income is officially part of the tax conversation. Whether you’re selling subscriptions, offering cloud services, or freelancing from your condo, the BIR wants you on record.
Today’s smart digital businesses are not just building online. They’re registering for VAT, issuing invoices, and fulfilling their VAT obligations as part of the new normal.
If not, now is the time to register, file correctly, and future-proof your business. The systems are live. The expectations are clear. And the VAT return calendar waits for no one.
Because if Netflix can pay the BIR, so can you.
