The Philippines started implementing a 12% VAT on digital services for non-residents as part of an emerging effort to eliminate competitive disadvantages faced by local businesses and capture tax revenue from the rapidly growing digital economy.
According to a report by Anrok, the new mandate will apply regardless of whether a digital service provider has a physical presence in the country.
Foreign providers earning over PHP 3 million in revenue in the Philippines are required to register with tax authorities, report B2B sales, collect business customers’ tax ID Numbers, and obtain additional verification (such as a questionnaire or tick box on their website or platform to confirm the customer is a business) even though these transactions are not taxable under the reverse charge mechanism.
Further, SaaS and digital services companies should be prepared for immediate tax compliance to ensure they meet all filing requirements and implement proper VAT procedures. The country's system is requiring quarterly filing, with penalties of up to 50% for non-compliance or misfiling.
According to Anrok, these changes create immediate compliance challenges for impacted companies, as they require sophisticated tax determination systems capable of distinguishing between different revenue streams and calculating correct tax treatment based on complex location and service-type rules.
Even for companies that fall below the country’s registration thresholds, tracking annual revenue by country now becomes essential for ongoing compliance monitoring.
Anrok says this signals the complete erosion of the once-common exemption for foreign digital service providers and makes tax compliance an unavoidable aspect of international digital business.
