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Philippines House Committee Approves Legislation to Impose VAT on Digital Services

On 29 July 2020, the Philippines House Committee on Ways and Means approved a substitute bill containing three previously submitted bills, including Bill H.B. 6755, which was initially submitted in May 2020 to impose VAT on digital services. The bill provides that a non-resident digital service provider will be required to register for VAT in the Philippines if:

  • Gross sales or receipts from the Philippines in the past 12 months have exceeded PHP 3 million, excluding exempt sales; or
  • There are reasonable grounds that gross sales or receipts from the Philippines will exceed PHP 3 million in the next 12 months, excluding exempt sales.

If a non-resident provider is required to register but fails to do so, the bill provides for a 12% withholding tax to be levied at the time of payment.

For VAT purposes, a digital service provider is defined as an entity that provides digital service or goods to a buyer through an online platform for purposes of buying and selling of goods or services or by making transactions for the provision of digital services on behalf of any person. In particular, this can include:

  • a third party that acts as a conduit for goods or services offered by a supplier to a buyer and receives commission;
  • a promotion platform provider that uses the internet to deliver marketing messages to attract buyers;
  • a host of online auctions conducted through the internet, where the seller sells the product or service to the person who bids the highest price;
  • a supplier of digital services to a buyer in exchange for a regular subscription fee over the usage of the product or service; and
  • a supplier of electronic and online services that can be delivered through an information technology infrastructure, such as the internet.

A digital service is defined as any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service may be automated. This includes, among others, online licensing of software, mobile applications, video games, online games, the provision of digital content, electronic marketplace services, internet-based communication services, database and hosting services, etc.

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