i. VAT on Digital Services (RA 12023)

VAT on Digital Services under Republic Act No. 12023

Under Section 105 of the National Internal Revenue Code, as amended by Republic Act No. 12023, any person who, in the course of trade or business, renders services, including digital services, is subject to the value-added tax (VAT)¹. VAT is an indirect tax, the amount of which may be shifted or passed on to the buyer, transferee, or lessee¹. The tax is levied, assessed, and collected at the rate of twelve percent (12%) of the gross sales derived from the sale or exchange of services, including digital services².

A "digital service" is defined as any service 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 automated³. Digital services include:

• Online search engines³;
• Online marketplaces or e-marketplaces³;
• Cloud services³;
• Online media and advertising³;
• Online platforms³; or
• Digital goods³.

The digital service provider, whether resident or nonresident, is liable for assessing, collecting, and remitting the VAT on digital services consumed in the Philippines, subject to statutory withholding rules³. A nonresident digital service provider is one that has no physical presence in the Philippines³. Digital services delivered by nonresident digital service providers are considered performed or rendered in the Philippines if they are consumed in the Philippines¹. Separately, the rule of regularity does not apply to services rendered in the Philippines by nonresident foreign persons¹. This framework accords with the destination principle governing the value-added tax as a tax on consumption, under which goods and services are taxed only in the country where they are consumed (Tayam v. Recto, G.R. No. 280898, 22 April 2026)⁴.