VAT on Digital Service Providers: What Filipino Taxpayers and Businesses Need to Know

Understanding the Impact of VAT on Digital Services: A Guide for Businesses Under RR 3-2025

The Bureau of Internal Revenue (BIR) has issued Revenue Regulations No. 3-2025 (RR 3-2025), mandating a 12% VAT on digital services offered by resident and non-resident Digital Service Providers (DSPs). 

RR 3-2025 affects businesses that rely on foreign-based platforms such as accounting software, cloud storage, digital advertising, collaboration tools, and editing platforms.

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Key Implications of VAT on Digital Services for Your Business:

1. Withholding VAT for VAT-Registered Taxpayers

VAT-registered businesses using digital services from unregistered non-resident DSPs must withhold 12% VAT from payments. The withheld amount should be remitted via BIR Form 1600-VT by the 10th day of the month following the transaction.

‍2. Non-VAT-Registered Taxpayers 

Non-VAT-registered businesses are exempt from withholding VAT on purchases from unregistered non-resident DSPs. However, these expenses should be recorded as operating costs. Always secure proper invoices from DSPs to validate transactions.

‍3. Claiming Input Tax Credits 

For VAT-registered taxpayers aiming to claim input VAT credits from transactions with non-resident DSPs, ensure you keep detailed digital invoices containing:

• Date of the transaction
• Transaction reference numbers
• Buyer’s identification (including TIN, if applicable)
• Description of the digital service provided
• Total amount paid, clearly indicating VAT inclusion
• Maintain thorough documentation, as these transactions will also reflect in your annual income tax returns.

How Can Your Business Adapt?

Step 1: Identify Your DSPs  

List down your current digital service providers and identify whether they are registered or unregistered, and if they are resident or non-resident DSPs. This step helps ensure compliance with applicable VAT obligations.

Step 2: Strengthen Documentation Practices

Maintain accurate and detailed records of all digital invoices and transactions to ensure compliance during potential BIR audits or reviews.

Step 3: Choose Local Alternatives

Explore local digital solutions like Juan Accounting to simplify compliance and processes by eliminating the need to withhold VAT on foreign services.

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Why Juan Accounting Software?

Juan Accounting Software, being a local registered DSP, is compliant with Philippine VAT regulations. Using Juan Accounting:

• Eliminates the need to withhold and remit VAT on foreign digital services.
• Provides clear, BIR-compliant invoicing.
• Simplifies your overall tax and compliance responsibilities.

RR 3-2025 seeks to promote fair taxation in the digital economy while introducing new compliance requirements for businesses using foreign DSPs. Leveraging local solutions like Juan Accounting offers an efficient and compliant alternative. Stay proactive, informed, and compliant to avoid unnecessary complications with the BIR.

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