Last October 2, 2024, President Marcos signed into law Republic Act (RA) No. 12023 or the Value Added Tax (VAT) on Digital Services Law which imposes a 12% VAT on digital service providers (DSPs). The new law aims to equalize the tax obligations of digital service providers located overseas, particularly those engaged in entertainment, content creation, marketplaces, and cloud services, with those of local players.
Digital service and digital service provider
The digital service provider is defined as a resident or nonresident supplier of digital services to a consumer who uses digital services subject to VAT in the Philippines. Digital services are referred to as any service that is supplied over the internet or other electronic network with the use of information technology, and the supply of the services shall include online search engines, online marketplaces, cloud services, online media and advertising, online platforms or digital goods.
Persons and entities liable to VAT on digital services
Persons and entities who, in the course of trade or business, render services, including supply of digital services, lease of motion picture films, tapes, and discs, and lease of radio, television, satellite transmission, and cable television time, shall be subject to VAT, regardless of the place of the execution of such agreements, provided that the consumption or use of such properties are made within the country. Digital service services delivered by nonresident digital service providers (NDSPs) shall also be considered performed or rendered in the Philippines if the digital services are consumed in the Philippines.
Registration requirements of NDSPs and Remittance of VAT
An NDSP is required to register for VAT if their gross sales for the past 12 months have exceeded the VAT threshold (currently posed at P3 million and adjustable every three years) or if there is a reasonable ground that the gross sales for the next 12 months will exceed the VAT threshold. Under the law, a simplified automated registration system for NDSPs shall be established by the Bureau of Internal Revenue (BIR).
The VAT-registered NDSP shall be liable for the remittance of VAT to the BIR on digital services rendered to non-VAT registered consumers. NDSPs, however, are not allowed to claim creditable input tax.
On the other hand, the liability to withhold and remit to the BIR of the VAT due on digital services rendered to a VAT-registered consumer shall be made by the consumer within ten (10) days following the end of the month the withholding was made.
In addition, the VAT-registered NDSP classified as an online marketplace or e-marketplace shall be liable to remit the VAT on transactions of nonresident sellers that go through its platform given that it controls key aspects of the supply and it sets, either directly or indirectly, any of the terms and conditions under which the supply of goods is made or is involved in the ordering or delivery of goods, whether directly or indirectly.
Digital service transactions exempt from VAT
Educational services, including online courses, online seminars, and online trainings, rendered by private educational institutions, duly accredited by the Department of Education (DepEd), the Commission on Higher Education (CHED), the Technical Education and Skills Development Authority (TESDA), and those rendered by government educational institutions; and the sale of online subscription-based services to DepEd, CHED, TESDA, and educational institutions recognized by said government agencies are included as VAT-exempt. Services of bank, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries, including those rendered through different digital platforms are likewise exempt from VAT under the law.
Invoicing Requirements
A digital sales or commercial invoice shall be issued for every sale, barter, or exchange of digital services made by a VAT-registered NDSP. The digital sales or commercial invoice issued shall indicate date of transaction, transaction reference number, identification of the consumer, brief of the transaction, and the total amount with the indication that such amount includes VAT.
If the sale of digital services includes some services which are subject to VAT, and some that are VAT zero-rated or VAT-exempt, the invoice shall clearly indicate the break-down of the sale price between its taxable, exempt, zero-rated, and components subject to VAT: provided, that the calculation of the VAT on each portion of the sale shall be shown on the invoice.
Power of the BIR to Suspend the Business Operations
Failure to register as required by the law will result in a temporary closure of the establishment of not less than five (5) days and shall be lifted only upon compliance with requirements prescribed by the Commissioner in the closure order. Further, the power to suspend by the Commissioner includes blocking of digital services performed in the Philippines by a digital provider, which will be implemented by the Department of Information and Communications Technology through the National Telecommunications Commission.
Incremental Revenues from the VAT on Digital Service Providers
Five percent (5%) of the incremental revenue from the VAT on DSPs will be allocated and used exclusively for the development of creative industries, as defined under Republic Act No. 11904, otherwise known as the “Philippine Creative Industries Development Act,” for five (5) years from the effectivity of this Act and the incremental revenues will accrue to the General Fund upon the lapse of the five (5) year period.
Transitory Clause and Effectivity
NDSPs are immediately subject to VAT under this Act after one hundred twenty (120) days from the effectivity of the implementing rules and regulations, which shall be issued by the Department of Finance (DOF) not later than ninety (90) days from the effectivity of this Act.
This Act shall take effect fifteen (15) days after its publication in the Official Gazette or in a newspaper of general circulation.
Please be guided accordingly.
Source:
P&A Grant Thornton
Certified Public Accountants
P&A Grant Thornton is the Philippine member firm of Grant Thornton International Ltd
As published in SunStar Cebu, dated 09 October 2024
