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November 15, 2021

Philippines proposes law imposing VAT on nonresident digital service providers

Executive summary

The Philippine House of Representatives on 21 September 2021 approved a bill1 imposing 12% value added tax (VAT) on nonresident digital service providers engaged in the sale, barter, exchange and lease of goods or properties and services using digital or electronic platforms.

Nonresident digital service providers with annual gross sales/receipts exceeding PHP3 million (approximately US$60,000) will be required to register for VAT purposes. The bill was transmitted to the Philippine Senate on 22 September 2021 for further legislative review.

This Tax Alert summarizes the key amendments and new provisions proposed under the bill.

Detailed discussion

The key amendments and new provisions include:

  • Nonresident digital service providers will be liable for assessing, collecting and remitting VAT on the transactions that are processed via their platforms.

  •  A “digital service provider” is defined as a service provider of a digital service or good to a buyer, through operating an online platform for the purposes of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person.

  • The sale or exchange of services subject to VAT would include the following:

    • The supply of digital services such as online advertisement services, provision of digital advertising space, and any other facility or service for the purpose of online advertisement.

    • The supply of digital services in exchange for a regular subscription fee over the usage of the said product or service.

    • The supply of electronic and online services that can be delivered through an information technology infrastructure, such as the internet.

  • Educational services including online courses and webinars, and books and other printed materials which are sold electronically or online which are not devoted principally to the publication of paid advertisements are exempt from VAT.

  • Nonresident digital service providers subject to the 12% VAT on digital transactions cannot claim creditable input taxes.

  • Subject to the establishment of a simplified automated registration system, nonresident digital service providers will be required to register for VAT purposes if their gross sales or gross receipts for digital services for the past 12 months before the date of filing of VAT return exceed PHP3 million or if there are reasonable grounds to believe that their gross sales or gross receipts for digital services for the next 12 months from the date of filing of VAT return will exceed PHP3 million.

  • VAT-registered nonresident digital service providers may issue an electronic invoice or receipt, subject to domestic rules and regulations.

  • Payments to nonresidents, not registered for VAT purposes, for services rendered in the Philippines shall be subject to 12% withholding VAT at the time of payment.


Nonresidents engaged in electronic or digital transactions should monitor these VAT developments in the Philippines and consider if their transactions with Philippine customers would be subject to the 12% VAT and require VAT registration.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Philippines (SGV & Co.), Makati City

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago



  1. House Bill No. 7425 entitled “An Act Imposing Value-Added Tax on Digital Transactions in the Philippines Amending for the Purpose Sections 105, 108, 109, 110, 113, 114, and 236 and adding a new Section 105-A of the National Internal Revenue Code of 1997, as Amended.”

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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