VAT on Digital Services & the NRFC Registration Requirement in the Philippines (all the essential law and practice as of 19 June 2025, written for lawyers and tax practitioners)
1 Legislative Backbone
| Layer | Key Issuance | Core Points for Digital-Services VAT |
|---|---|---|
| Statute | National Internal Revenue Code (NIRC), as last amended by R.A. 10963 (“TRAIN,” 2017) and R.A. 11534 (“CREATE,” 2021) | - Secs. 105, 108 & 114 impose a 12 % VAT on the “sale, assignment or licensing of services” when (a) the seller is “in the Philippines,” or (b) the service is consumed in the Philippines. - CREATE added Sec. 106(A)(2)(b) expressly treating electronic or digital services supplied by non-residents as “considered sold in the Philippines.” |
| Delegated legislation | Revenue Regulations (RR) No. 13-2022 (effective 1 Oct 2023) | - First detailed definition of “digital services” (streaming, cloud, online ads, app stores, SaaS, e-marketplaces, gaming, etc.). - Introduced the P3 million annual gross receipts threshold for mandatory VAT registration of non-resident digital service providers (DSPs) and their platform operators. - Required simplified VAT registration, filing & payment portal for NRFCs. |
| RR No. 7-2023 (transitional) | - Granted a 6-month window (1 Oct 2023 – 31 Mar 2024) for voluntary registration with no penalties for late VAT declaration/collection during the “onboarding” period. | |
| Revenue Memorandum Circular (RMC) No. 20-2024 | - Answered FAQs on (i) apportioning Philippine-source receipts, (ii) currency conversion rules (daily BSP reference rate), (iii) electronic invoicing / OR generation, and (iv) refund mechanics when a customer subsequently proves to be a VAT-registered buyer (B2B). | |
| Bills still pending (for context only) | House Bill 4122 / Senate Bill 2521 (the “E-Commerce VAT Modernization Bill,” versions 2024-2025) | Would codify the above rules directly into the NIRC and lower the VAT-registration threshold to P1.5 million; as of 19 Jun 2025 the bills are still in bicameral conference. |
2 Who Exactly Must Register?
| Category | Statutory label | VAT stance before rules | Stance after RR 13-2022 |
|---|---|---|---|
| Foreign corporation with no PE but selling digital services to PH individuals | NRFC (Non-Resident Foreign Corporation) | Taxable only via WHT (royalty/art-VIII) if any; VAT unclear. | Must register if ≥ P3 M receipts in any 12-month period from PH users and charge 12 % VAT. |
| Foreign platform operator (app store, marketplace) facilitating 3rd-party digital sales | NRFC acting as “DSP-Platform” | None | Deemed the seller and must register, collect & remit VAT on behalf of underlying vendors, unless it can prove those vendors themselves are BIR-registered. |
| Foreign provider of pure B2B enterprise SaaS to PH-VAT-registered companies | NRFC | No VAT; PH buyer self-assessed VAT via reverse-charge (Sec. 114(C)) | May opt NOT to register. The reverse-charge mechanism remains if every customer is VAT-registered and issues a sworn declaration (Form DSP-B2B). |
| Non-resident natural person developer (freelancer) selling apps/games direct to PH users | NRC (Non-Resident Citizen) | N/A | Subject to same P3 M threshold but can apply the optional 8 % gross-revenue tax in lieu of VAT/income tax if below threshold, mirroring resident sole-props. |
Key take-away: “Digital Service Provider (DSP)” in the regulations is a functional test—if you control the billing interface or collect payment from PH users, you qualify and must check the threshold.
3 The Mechanics of NRFC VAT Registration
Application – Online only, through the “NRDSP Portal” housed within the BIR eFPS site.
- Upload: Articles of Inc., SEC/foreign registry documents (with apostille), board resolution naming local representative, and a Special Power of Attorney.
- Obtain: Temporary Taxpayer Identification Number (TTIN) prefixed “43-”.
Local Representative – Must be a Philippine-resident individual or domestic corporation authorized to receive BIR notices. They do not become jointly liable for unpaid VAT unless they are also the payment processor.
VAT Filing & Payment
Form Periodicity Due date Notes BIR Form 2553-D (simplified for NRFC DSPs) Quarterly Within 25 days after the close of the quarter Amounts auto-computed in portal; payment via credit/debit card or SWIFT transfer in PHP. Summary List of Digital Transactions (SLDT) Quarterly (attachment) Same due date Requires customer count, gross receipts, and VAT segregated by PH vs. non-PH IP address. Receipting/Invoicing –
- NRFCs must issue e-ORs or PDFs bearing the TTIN and phrase “VAT on digital services – Sec. 108(A), NIRC.”
- Peso conversion rule: Use Bangko Sentral ng Pilipinas (BSP) reference rate on FX settlement date if billing is in foreign currency.
Output VAT collection – Show as a separate line item; input VAT credit is allowed only to customers already VAT-registered (who may apply for refund if DSP still charged).
Record-keeping – Maintain transaction logs / server data pinpointing location (IP, GPS, SIM home network) for 10 years. The BIR may issue a Notice to Present logs within 5 working days.
4 Determining “Philippine Consumption”
The regulations adopt an “end-user indicators” hierarchy (mirrors OECD guidelines):
Primary tests (any one is sufficient)
- Billing address is in the Philippines;
- Credit/debit card or e-wallet issued in the Philippines;
- Subscriber’s phone country code “+63”;
- IP address geo-located in PH and purchase confirmation despatched to PH-based email domain (.ph).
Secondary tests (if primary inconclusive)
- Device language + currency set to PHP;
- Delivery of activation code to PH postal address.
A DSP failing to apply reasonable verification is prima facie liable.
5 Transition: Sales Before & After Registration
| Scenario | VAT consequence |
|---|---|
| NRFC crosses P3 M threshold within a taxable quarter | Must register within 20 days after the month the threshold was breached. VAT liability starts the day following registration approval, not retroactive. |
| Sales while application pending (max 15 days) | May issue “pro-forma receipt – VAT pending approval.” Once registered, VAT must be computed on those sales and included in the first 2553-D. |
| Sales prior to crossing threshold | Remain non-VAT, but still subject to 2 % Percentage Tax under Sec. 116 if NRFC elected to register as “Resident agent.” |
6 Input VAT & Reverse-Charge Interaction
- Business Purchasers: A Philippine VAT-registered company buying digital services from a non-VAT-registered foreign provider must self-assess 12 % VAT (reverse-charge) and may claim it as input VAT (Sec. 114(C)).
- Once the NRFC registers, the provider charges Philippine output VAT; no reverse-charge is due. Duplicate payments may be refunded to the buyer under Sec. 229 within 2 years, using the new BIR Form 1916-D.
7 Penalties & Enforcement
| Infraction | Penalty |
|---|---|
| Failure to register within statutory period | PHP 10,000 + 25 % surcharge on unpaid VAT + interest (12 % p.a.). |
| Failure to file 2553-D / pay VAT | 25 % surcharge + interest; felony if willful, punishable by fine (up to PHP 1 M) and/or imprisonment (2-4 years) per Sec. 255, NIRC. |
| Erroneous location data (negligence) | Administrative fine up to PHP 500,000. |
| Aiding-and-abetting by local payment processor | Joint & several liability under Sec. 247 and disqualification from processing domestic payments for 2 years. |
The BIR now routinely cross-references BSP “merchant category code” (MCC) remittance reports and large e-wallet data to flag unregistered high-traffic DSPs.
8 Practical Issues & Open Questions (2025)
- Threshold tracking – Currency fluctuations inflate gross receipts in PHP. NRFCs should run a daily threshold monitor using BSP reference rates.
- Split-platform arrangements – If billing is done offshore but content delivered by a PH affiliate, both may be treated as joint DSPs (RR 13-2022, §5.3).
- Bundled offers (device + content) – VAT allocation must follow arm’s-length split; otherwise, 100 % of bundle is treated as a digital service.
- Permanent Establishment (PE) – VAT registration does not create PE for income-tax purposes, but repeat on-the-ground marketing in PH can. Always coordinate VAT & transfer-pricing analyses.
- Pending lower-threshold bill – Plan for possible P1.5 M trigger in 2026. Early voluntary registration avoids disruptive mid-year VAT adoption.
9 Compliance Checklist for NRFC DSPs
| Step | Timing | Deliverable |
|---|---|---|
| 1 | Pre-launch | Appoint local rep; secure apostilled documents. |
| 2 | Before exceeding P3 M | Register on NRDSP Portal; obtain TTIN. |
| 3 | From go-live | Collect 12 % VAT; issue e-OR with TTIN. |
| 4 | Within 25 days after each quarter | File Form 2553-D & pay VAT; attach SLDT. |
| 5 | Ongoing | Maintain logs for 10 years; threshold monitoring. |
| 6 | Annually (optional) | Apply for VAT refund of bad debts ≥ P5 K each (Sec. 113(B)(4)). |
10 Bottom Line
- Digital services consumed in the Philippines are now squarely within the VAT net.
- Non-resident foreign corporations (NRFCs) supplying such services must register and collect Philippine VAT once their Philippine-source receipts hit P3 million in any rolling 12-month period (soon likely to drop to P1.5 M).
- Compliance, while intentionally simplified, still demands careful geo-location controls, currency tracking, record-retention, and coordination with local representatives.
Failure to comply invites penalties and reputational risk, particularly given the BIR’s data-matching initiatives with payment platforms and the BSP. Early, voluntary registration and robust systems are the safest course for any serious digital-economy player targeting Philippine customers.