BIR Revenue Regulation 3-2025: Understanding the New VAT Rules for Digital Services in the Philippines

BIR Revenue Regulation 3-2025: Understanding the New VAT Rules for Digital Services in the Philippines

Taxes| Accounting| Licensing
January 15, 2025•4 min read

Published Date: January 15, 2025

Published By: Jac Cantos, Upcloud Accounting

The Bureau of Internal Revenue (BIR) has issued Revenue Regulation (RR) 3-2025, introducing Value-Added Tax (VAT) on digital services provided in the Philippines. This impacts both domestic and foreign digital service providers (DSPs) offering services to businesses and consumers within the country. The regulation clarifies VAT application to various digital services, outlining compliance requirements for different stakeholders.


Digital Services Covered by the New VAT Rules

RR 3-2025 defines digital services as those supplied online or via electronic networks with minimal human intervention. This includes:

  • Online search engines (e.g., Google Search)

  • Online marketplaces (e.g., Lazada, Shopee, Amazon)

  • Cloud services (e.g., AWS, Google Cloud, Dropbox)

  • Online media and advertising (e.g., Facebook Ads, Google Ads)

  • Streaming platforms (e.g., Netflix, Spotify)

  • Digital goods (e.g., e-books, mobile apps, software licenses)

Companies providing these services to Philippine consumers or businesses must comply with VAT obligations.

VAT Obligations Under RR 3-2025

VAT obligations vary depending on the DSP's residency and the type of transaction (Business-to-Business or B2B, and Business-to-Consumer or B2C):

  • Resident DSPs: Must register with the BIR, charge VAT, and file VAT returns according to existing tax laws.

  • Non-resident DSPs: Must register via the BIR's VDS Portal and file VAT returns quarterly.

  • Local Businesses (B2B): Must withhold and remit 12% VAT on purchases from non-resident DSPs (B2B reverse charge).

  • Consumers (B2C): Non-resident DSPs collect and remit 12% VAT directly.

The B2B Reverse Charge Mechanism Explained

When a Philippine business buys digital services from a non-resident provider:

  1. The business pays for the service.

  2. The business withholds 12% VAT from the payment.

  3. The business files a remittance return and submits the withheld VAT to the BIR.

  4. The withheld VAT can be claimed as input VAT or treated as a business expense.

Registration Requirements for Digital Service Providers

  • Resident DSPs: Register with the BIR under Section 236 of the Tax Code and follow standard VAT filing procedures.

  • Non-resident DSPs: Register through the BIR's VDS Portal within 60 days of the regulation's effective date (March 17, 2025). They may optionally appoint a local third-party service provider for assistance with BIR communications, record-keeping, and tax filings. This appointment does not constitute doing business in the Philippines.

VAT Filing and Payment Procedures

  • Resident DSPs: File VAT returns as per Title III of the Tax Code. E-marketplaces with non-resident sellers must also file remittance returns and withhold/remit 12% VAT on gross sales.

  • Non-resident DSPs: For B2B, the buyer withholds and remits VAT. For B2C, the non-resident DSP files quarterly returns and pays via the VDS Portal. E-marketplaces with non-resident sellers file VAT returns and remit 12% VAT on gross sales.

Foreign Currency Transactions

For transactions in USD or other foreign currencies, VAT conversion to Philippine Pesos uses either the daily spot exchange rate or the monthly average rate published by the Bankers Association of the Philippines (BAP). If unavailable, other reputable sources can be used.

Invoicing Requirements

  • Resident DSPs: Must issue standard sales/commercial invoices.

  • Non-resident DSPs: Must issue invoices (including e-invoices) with specific details: transaction date, reference number, buyer details (including TIN if applicable), description of service, total amount (VAT included), and a breakdown of VATable, VAT-exempt, or zero-rated sales. Invoices must be in English or include an English translation.

Effective Dates and Compliance

  • Non-resident DSP registration deadline: 60 days from March 17, 2025.

  • VAT application date: 120 days from March 17, 2025 (May 16, 2025).

Preparing for the Changes

Businesses should:

  • Assess their digital service transactions to determine VAT obligations.

  • Ensure proper VAT withholding for B2B purchases.

  • Update invoicing and record-keeping systems.

  • Monitor registration and remittance deadlines.

  • Seek professional tax advice for complete compliance.

Navigating RR 3-2025 with Upcloud Accounting

Upcloud Accounting provides support for businesses navigating the complexities of RR 3-2025. Our services include VAT compliance consulting, BIR registration assistance, VAT filing and reporting, and customized solutions tailored to your industry's specific needs. Contact us to discuss how we can help ensure your business remains compliant with these new regulations.

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Upcloud Accounting offers accounting, bookkeeping, tax compliance, and business licensing services specializing with startups and SMEs in the Philippines.

Our goal is to increase efficiency, automation, and transparency across the accounting and finance functions of our clients with our cutting-edge technology. If you want to move your company’s finance function online, contact our Team of Expert Accountants and Bookkeepers directly via [email protected] or visit www.upcloudaccounting.com to learn more about how Upcloud Accounting accounting services can support your PH business!

Disclaimer: This article or blog is only for general knowledge and guidance and is not a substitute for an expert opinion. For technical advice, please consult your tax / legal advisor for your specific business concerns. For comments, suggestions, and feedback, feel free to email us at [email protected].

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