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Philippines VAT Guide for Digital Businesses

Local Taxes:
Tax threshold:
PHP 3.000.000
Bureau of Internal Revenue

No matter where you live or where your online business is based — if you have customers in the Philippines, you gotta follow the rules for VAT in the Philippines. That’s what this guide is for! This guide includes everything you need to know about digital tax laws in the Philippines, whether your customers live in Manila or Ciudad Quezón.

Digital products

First, let’s confirm what you’re trying to sell is subject to VAT in the Philippines. Are you selling digital products?

A digital product is any product that’s stored, delivered, and used in an electronic format. These are goods or services that the customer receives via email, by downloading them from the Internet, or through logging into a website.

But some countries can have more specific definitions or exceptions.

You’re probably consuming and using digital products all day long, whether or not you realize it. Here are some common ones on the market today:

E-books, images, movies, and videos, whether buying a copy from Shopify or using a service like Netflix. In tax language, these products are in a category usually called, “Audio, visual, or audio-visual products.”

Downloadable and streaming music, whether buying an MP3 or using a service like SoundCloud or Spotify. Of course, these products also fall in the audio category.

Cloud-based software and as-a-service products, such as Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS).

Websites, site hosting services, and internet service providers.

Online ads and affiliate marketing. Income from these services can be considered taxable under digital tax policies.

Heads up: you might also hear digital goods referred to as “digital services,” “e-goods”, or “e-services.” All of these terms refer to the same thing. Not sure if what you sell is considered a “digital product?” Check out our explanation of what a digital product is exactly.

Philippines’s VAT for digital products

VAT is the consumption tax throughout the Philippines, levied on almost everything sold in the country. There are specific rules around digital products, which you must follow closely to stay tax compliant. If you sell digital products to a customer in the Philippines, you must charge the VAT rate. Simple, right? It’s simple in theory. But in practice, Philippines VAT has a bit more complexity. You don’t necessarily need to add tax to every sale. It can depend on the amount of sales you make in the country, whether the sale is B2B or B2C, and other things. We’ll go into more detail about each of these throughout the rest of the guide!

Register for VAT in the Philippines

Is there a sales registration threshold?

Yes, the Philippines has an annual sales registration threshold of PHP 3,000,000.

What does this mean exactly?

Well, the threshold amount refers to your total sales in the country, during any 12-month period. This can be a calculation of sales in the last twelve months, or a prediction of sales in the next twelve months — any rolling year-long period, past or future.

If your total sales in the Philippines remain below PHP 3,000,000, then you don’t need to worry about VAT at all. Phew!

But once your sales do surpass PHP 3,000,000, then you must register for VAT in the Philippines and comply with all of the rules around tax rate and collection, invoices, and filing returns.

How to register for VAT in the Philippines

So, it turns out you do need to register for tax in the Philippines. Don’t worry! Just follow these instructions from the Filipino tax authority on how to register for Filipino VAT.

Ultimately, you will receive a VAT registration number, which establishes you in the Filipino tax system as a legal business. This number tracks your business through the system: the taxes you pay, the tax credits you receive, plus the tax you charge from customers.

Do you need a local tax representative?

No, you don’t need a local tax representative to register for VAT in the Philippines according to the Bureau of Internal Revenue. Once you’re liable, you should apply to register by filling out BIR Form No. 0605 and also pay the registration fee of five hundred pesos (P500.00).

Collectives VAT in Philippines

If you sell B2C

Once you’re registered for taxes, you’re expected to charge 12% VAT on every sale to a Filipino resident.

If you sell B2B

If your customer is a fellow business, and they’ve provided a valid VAT number, then adding and collecting tax isn’t necessary! The buyer will handle tax, via Philippines’s reverse-charge mechanism.

Quaderno automatically registers whether the sale is B2C or B2B, and will calculate the appropriate tax for the sale automatically. That way, your business always collects the correct amount of VAT. See how it works with a free trial!

VAT invoices in Philippines

In order to comply with tax laws, you should include the following information on your invoices to customers in Philippines:

  • Your business name and address
  • Your business VAT number
  • Invoice date
  • Invoice sequencing number
  • Description of the goods or services
  • Rate of VAT applied to each item
  • Total amount including VAT

The easiest solution for the VAT invoice would be to use a tax software that automatically generates and sends all invoices (as soon as the sale is complete), and also stores them in the cloud for you. Quaderno does just that, but we won’t go on about it here.

Our tax compliance software will create and send these invoices for you automatically!

Filing VAT returns in Philippines

Charging and collecting tax is only the first half of staying compliant. The second, and equally important, half is filing returns and paying whatever you might owe to the government.

In the Philippines, foreign businesses are expected to file tax returns every month. You have 10 days to file and pay after the end of each period.

Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the tax authorities.

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