RMC No. 126-2024: Circularizing Republic Act No. 12023, titled “An Act Amending Sections 105, 108, 109, 110, 113, 114, 115, 128, 236, and 288 and Adding New Sections 108-A and 108-B of the National Internal Revenue Code of 1997, as Amended”

Key points

1. VAT coverage of digital services. Section 105 covers digital services and imported goods. Services rendered in the Philippines by nonresident foreign persons count as in the course of trade or business. Digital services of nonresident providers count as rendered in the Philippines if consumed there. Section 108 applies the 12% VAT to the sale or exchange of services, including digital services, with new items for the supply of digital services.
2. Liability of digital service providers. New Section 108-A makes resident and nonresident digital service providers liable to assess, collect and remit VAT on digital services consumed in the Philippines. Digital services include online search engines, online marketplaces, cloud services, online media and advertising, online platforms and digital goods. Under Section 108-B, a nonresident provider required to register for VAT remits the VAT when consumers are non-VAT registered. If consumers are VAT-registered, Section 114(D) applies.
3. Online marketplaces. A VAT-registered nonresident online marketplace also remits VAT on transactions of nonresident sellers through its platform. This applies if it controls key aspects of the supply and either sets the terms and conditions or is involved in ordering or delivery of goods.
4. Reverse charge, input tax and invoices. Under Section 114(D), a VAT-registered taxpayer withholds and remits VAT on digital services bought from nonresident providers within ten (10) days after the end of the month of withholding. Nonresident digital service providers cannot claim creditable input tax. A VAT-registered nonresident provider issues a digital sales or commercial invoice with the date, transaction reference number, consumer identification, brief description, and total amount including VAT.
5. Exemptions and other amendments. Section 109 exempts educational services, including online courses, seminars and trainings, by accredited private and government educational institutions, and online subscription-based services sold to DepEd, CHED, TESDA and recognized institutions. It also exempts services of banks and non-bank financial intermediaries, including through digital platforms. Section 115 adds blocking of digital services through the DICT and NTC as part of the Commissioner’s power to suspend operations. Section 236 requires VAT registration based on the gross sales threshold in Section 109(CC) and calls for a simplified automated registration system for nonresident providers.
6. Revenue use and timing. Under Section 288, five percent (5%) of incremental VAT revenue from digital service providers goes to developing creative industries under RA No. 11904 for five (5) years, then to the General Fund. Nonresident providers become subject to VAT after one hundred twenty (120) days from effectivity of the implementing rules, which the Department of Finance issues within ninety (90) days from effectivity of the Act.

Who is affected

• Resident and nonresident digital service providers
• VAT-registered taxpayers buying digital services from nonresident providers
• Online marketplaces
• Private and government educational institutions
• Banks and non-bank financial intermediaries

Deadlines and effectivity

• VAT on nonresident digital service providers after 120 days from effectivity of the implementing rules
• Implementing rules within 90 days from effectivity of the Act
• Reverse charge remittance within ten (10) days after the end of the month of withholding
• Five percent allocation to creative industries for five (5) years